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Archive for January, 2007

Overcharging? A dedicated Realtor is a bargain . . .

Attorney Craig Blackmon issues a testy remark in a comment today, but the truth is, I could not be happier to discuss the underlying issue.

Sez Craig:

Well, it appears that even the “full service” agents are overcharging just a wee bit. It turns out that a successful agent must rebate nearly $69,000 a year to clients in order to charge a “fair” fee for the service. With this sort of transparency, I’m not sure Redfin has such a poor business model — at least they overcharge less.

I rebated more than half that amount in Q4 ’06 alone, so the number is not impressive to me.

Here is a number that has a very high priority for me today: Three.

That is the number of attorneys in two different states who tried with all their might — and failed — to kill one of my transactions.

They weren’t really trying to kill the deal — they were just being lawyers: Clumsy, stupid, ham-handed and — most particularly — slow. It took more than two weeks for the three of them to work out how to remove a bogus lis pendens that should never have been a cloud on the title in the first place.

I’m pretty sure each one of them made more on the house than I did.

But the important thing is, we closed the deal. A real estate attorney would have either killed the deal or bled the buyer white — for months. Lazy-for-less Redfin would have killed the deal. We closed today and my buyer moved in because I refused to let the transaction die.

I get paid for results, not ergs of energy expended nor drops of sweat spilled nor towering piles of paperwork. Results — not my time, not information, not obsequious service. I only get paid when I actually do the job I was hired to do.

Erg for erg, hour for hour, I lost my ass on this deal. But I don’t measure my life that way. I don’t have a job. I don’t get to eat one sesame seed every time I press the big red button. I work for days or for weeks without any compensation, and then, on some days, I get five-figure paychecks. I have worked for years for clients without getting paid for my efforts.

I don’t think I’m going to convince Mr. Blackmon of anything, nor do I wish to, but I can give thoughtful readers a lens for understanding “overcharging.”

If you paid for what you wanted and didn’t get it, you were overcharged.

Even if it didn’t cost you any money to lose what you wanted, you’re still out your time and that opportunity — possibly an irreplaceable opportunity.

If you got what you wanted when every other party to the transaction was working, intentionally or by default, to prevent you from getting it — you got good value for your money.

You’re not paying for an order-taker and you’re not paying for a good ol’ college try. You’re paying for results. If you’re not getting the results you’re paying for — you need to learn how to shop more wisely…

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  • 22 comments

    Bank Relationships vs. Mortgage Brokers

    Every property I have ever purchased has been with the help of a mortgage broker. After my recent trip, I have started to wonder why this is the case. The obvious answer is simply their access to cheaper capital. Brokers can secure rates 50 to 100 basis points (.5%-1%) lower than most local and national banks. Additionally, the terms tend to be more investor friendly, with longer amortization and no recourse. With all of these benefits, why would anyone consider going anywhere else?

    The answers lie in two things: Technology and Relationships. The easiest explanation is simple disintermediation through technology. The Internet has opened the mortgage world to investors by allowing them to search many national and local bank rates, as well as, look across the country for the most aggressive mortgage lenders. The time will come (probably very soon, if not already) when some forward thinking investor will provide a site that connects investors and lenders in the same way mortgage brokers do now (think Lending Tree for Commercial Loans).

    Additionally, looking at Brian Brady’s recent post, Interview: The XBroker, the industry seems poised for positive transparent change. This change will further allow disintermediation and provide investors unparalleled access lenders. Furthermore, increases in information will drive down pricing. I have consistently been quoted prices in the 1% (of loan value) range for broker services, which can be fairly steep as a percentage of closing cost when purchasing properties in the $500,000 to $1,000,000 range. I would love to see this come down to 50 to 75 basis points (sorry to the brokers out there, but business is business).

    The less obvious answer is relationship building. I probably mention that real estate is a relationship business in 90% of my post because I really believe this. This concept is no different when working with banks. The value of the relationship, however, is not apparent right away. Most banks have specific lending criteria and will only be able to offer certain terms based on their risk assessment model. This fact alone keeps mortgage brokers employed. What investors fail to realize, however, is that banks have latitude in other aspects of lending; I want to specifically address foreclosure here.

    No investor goes into a property thinking it will be foreclosed, but it happens. The catch is that banks can choose when to foreclose and they can even choose to offer bridge loans instead. Enter the investor relationship. While the relationship is not solely responsible for these decisions, it helps tremendously. Properties that show good fundamentals with a cash gap are prime opportunities for bridge financing. This financing is almost always easier (and cheaper) to get from the original lending institution because they have the most to gain or lose from foreclosure. Having a strong past relationship with the lending institution increases the likelihood of workout financing and decreases the likelihood of foreclosure.

    So what should the investor do with this information? Consider this information like a real option. If you do a lot of investing in one market and have a good relationship with a commercial bank, first, make sure you are getting their best rates. Then, consider the market cycles. When the market is strong this real option will probably have little value because the risk of foreclosure is very low. However, as the risk of the investment goes up (or as market fundamentals decline), this option becomes more valuable.

    Financing is one of many tools that real estate investors have in their arsenal. There are clear times when it is appropriate to go for the best rate and terms possible, but do not always assume this is the case. A good relationship with a strong commercial lender has value as well. While that value will fluctuate by market condition, it should always be considered when vetting financing alternatives.

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  • 8 comments

    Redfin and the antics of the INTx crowd . . .

    By my lights, one of the most interesting bits of news to come out of Inman Connect was Redfin’s announcement that they plan to swim into Boston Harbor. Washington State has reasonably normal wild-West real estate laws, as does California. The natural leap, in terms of maintaining a decent level of sanity over legal compliance, would be to migrate to nearby states — Nevada and Arizona leap to mind.

    There is a problem with this idea, though. The median home price in Phoenix is around $260,000. In Las Vegas, the median is around $300,000. If Redfin proposes to give back two-thirds of a $9,000 commission, there is a word for what’s left: Doodly.

    Unlike a true bottom-feeder, Redfin has encysted itself with a boatload of dead-heading barnacles. This is why it keeps trying to grow into luxury markets: The company needs one third of a bigger commission bite even to make a pretense at covering its inflated payroll.

    Kris Berg points out today that this is a less than brilliant strategy, inasmuch as buyers and sellers of luxury homes are busy people who have the money to pay for the kind of roll-out-the-red-carpet service they have come to expect. “We do nothing for less” is not a winning value proposition, generally speaking, among prosperous people.

    There is an exception to this rule, however. Kris hints at it by suggesting that younger people might be attracted to Redfin. They might, but few of them are buying or selling at the $500,000 level and above. Redfin actually sends a stronger hint by announcing their plans to jump to Boston.

    A couple of months ago, I was on the phone with Galen Ward. He suggested to me that, while Redfin’s approach to the marketplace was only popular with hi-tech Seattlites for now, eventually they would be seen as early-adopters and the business model would meet broad acceptance in the marketplace. This is a colorable proposition, I suppose.

    Just after Inman, I mentioned on Rain City Guide that I thought Move, Inc’s. Alan Dalton had mopped up Redfin’s Glenn Kelman in their debate. The example I offered was this: If you buy a $1,000,000 home with Redfin, they will rebate $20,000 to you. If you buy with a full-service Realtor, you may not get a commission rebate, but your agent may negotiate a $50,000 or $100,000 savings on the purchase price.

    There is no way to know this with respect to a hypothetical example, but since Redfin is not doing anything that a full-service Realtor would see as the duties of agency, it seems plausible to me that the Redfin value proposition is awful, compared to full-service real estate. And note that we are not even taking account of all the other tasks a full-service Realtor will undertake that Redfin seeks to avoid. Redfin may be “paying” you $20,000 to take care of yourself, but this assumes that you know how to take care of yourself. In a difficult transaction, a full-service Realtor is often the difference between the deal collapsing or closing.

    The interesting thing, to me, was that people couldn’t see the difference. A two percent rebate really isn’t a lot of money, where a dedicated, hard-working Realtor can deliver far more than two percent in value to a real estate transaction.

    All of this got me thinking about the INTJ and INTP personality profiles in the Myers-Briggs personality assessment. INTJ is introverted, intuitive, thinking, judging. INTP is introverted, intuitive, thinking, perceiving. It’s unfair to stereotype people, but INTJs are often found in software engineering jobs. INTPs are often mathematicians. INTJs and INTPs represent a very small part of the total population, but a very large part of the inventive and creative functions of a free-market economy. The poster child for the INTx corner of the personality matrix is Bill Gates.

    But: All purposive human behavior is chosen. People who test out as INTx are gifted by nature with strong analytical and mathematical skills, but the social ineptitude we associate with “nerds” is learned behavior. INTx children are rejected by more-extroverted children at the same time as they tend to gravitate to children who exhibit a similar kind of awkward genius. Human social organization is always about inclusion and exclusion, but, by excluding more socially-adept people from their sphere of influence, INTx children tend to self-reinforce their social ineptitude. This is a correctable nuisance, but, in the normal course of human affairs, most people do not stray very far from their comfortable habits of mind.

    I think Redfin’s business model is built to appeal to INTx personalities. Yes, as Galen Ward says, tech types love it. But, no, they are not the leading edge of a wave. Instead, they are the only people for whom $20,000 in the hand is more impressive than a potential for $50,000 or $100,000 in the bush — or more impressive than having the whole complicated mess taken care of by someone else.

    And by announcing their intention to go to Boston, I think Redfin is making plain that they know their ideal client is an INTx. They need to operate in cities where homes sell for a lot of money. But they also need to locate in cities where a significant proportion of high-income people are INTJs or INTPs. The real estate laws could not be more radically different, at the opposite ends of the I-90. But, in terms of personalities, the region inside the I-495 Beltway looks a whole lot like Bellingham.

    And thinking about it that way, Redfin might actually work. It’s a boutique brokerage, no matter how many offices they open. Dave Liniger can rest easy. But there’s a niche-marketer for every niche, and this just might be theirs.

    Disclosures: I. Just because I write about Redfin or Zillow or whatever, this doesn’t imply that I hate or fear them. I write about what is interesting to me. I realized earlier this month that Redfin must be consciously marketing to INTJs and INTPs, and I thought that was intriguing.

    II. I wrote at length in the last quarter of 2006 about a flat-fee buyer’s agency business model. We have officially abandoned this. Why? Because, whether or not INTx personalities care, no one else does. Buyers simply do not believe they are paying commissions — no matter how much we try to explain that they are — so they are supremely indifferent to commission rebates. Instead of marketing rebated commissions, we have gone back to using our sales commission to solve problems as they arise. I will write more about this later.

    III. Cathy tests out as an INTP. I come up as an ISTP. In comments, feel free to expose your Myers-Briggs profile.

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    Tick Tock — The Retirement Clock Is Counting Down

    One way or the other, the day you retire will be an emotional one. Why don’t you kick back tonight after dinner, and quietly imagine your last day at work. How does it feel? Are you giddy with anticipation? Or are you tense and uneasy, filled with anxiety about your status quo?

    Do you see yourself on the beach somewhere in the South Pacific? Or do you see yourself moving in with your son and his wife — the one you’ve never, well…….you know.

    Big Ben

    Are the sounds of your imagined retirement full of dance toons, island surf, and the laughter of good times? Or do you hear the endless droning of your only entertainment — TV?

    Outside of maintaining your health, the most important decision in your life from this day forward is what kind of retirement you’re going to proactively provide for yourself.

    For so many people today, retirement has turned out to be nothing like they imagined. It’s turned out to be more like a sentence. Once you retire, sans a winning lottery ticket, your future is cast in concrete.

    Now imagine it’s tomorrow and you’re reordering your priorities. Keep in mind just how much quiet suffering is being endured by folks now retired, who never planned for it. “Hurry up honey, Jeopardy’s starting!”

    20 to life is a long time. You had a lot longer than 20 years to plan for it. Now you have less time. Now that ticking clock is beginning to sound like Big Ben. Tick tock, another year. How much time do you have?

    How do you feel about making that time count?

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    Ladies and Gentlemen – Meet the Flintstones

    In the evolutionary chain of technology, I am somewhere between the Greg Swanns and Dustin Luthers of this world and, well, the Flintstones. Let’s just call me the missing link.

    My generation wasn’t born into a world where computers, much less websites and blogs and mash-ups and code, existed. With each new technological advancement, we boomers learned to adapt or face extinction. The majority of us have learned just enough to be dangerous; given enough interest and perceived benefit, we have watched those around us and learned to apply the tools as they were introduced into our society. As for our parents and grandparents, meet the Flintstones. For many (most) of this segment, information technology was introduced too late in their era. My grandmother loves her computer to play Solitaire, but you will never find her converting a PDF to a JPEG or hanging out in a chat room. For all practical purposes, she is a dinosaur. Then there are our children. They have never know a world without personal computers, digital cameras, scanning and faxing. They will not remember a time without YouTube or MySpace except when these things are replaced with more advanced applications.

    So, here comes the Redfin segue. Steve and I have been having some lengthy discussions lately about the Redfin model and its potential for broad success. Sure, we are a little short in the recreational-life category, but it has been a topic of discussion because I was recently invited to meet with Redfin CEO Glenn Kelman to “chat”. This being the eve of that meeting, it seemed apropos to reflect on the topic.

    From my vantage point, this is the $64 question: How will Redfin succeed where so many others have failed? Or, rather, who is their audience? HelpUSell, Zip Realty and other discount business models have had a limited audience at best; they are not, nor do I believe they will ever be, setting the world on fire and achieving significant market share. Of course, Redfin is approaching the issue from a standing-on-their-head perspective. While they pay lip service to the listing side of the equation, their real target is the coop fee and the buyer. I’m no Warren Buffet, but I think it safe to say that they can not survive by capturing only the limited market of card-carrying do-it-yourselfers. As Steve points out, there are simply too few of these to fill the seats and the box receipts would be insufficient to continue producing the show. Therefore, I suspect that they have a long-term vision of success involving preying on the young.

    The young, the Jetsons, are more than comfortable with all things web-based and are more than willing to spend hours upon empowered hours at the keyboard. It is too late for the Flintstones, of course. They will continue to shun disintermediation. Which leaves us with the biggest segment of the home buying pool – The missing link.

    Where the internet revolution is concerned, I can hold my own, but like most of my peers, I have to balance competing demands. Taking the average home buyer, they could spend their time looking under every Zillow and Realtor.com and Trulia and Oodle rock to find their dream home, and they could learn enough about the dynamics and mechanics and legalities of the process to ensure at least a modicum of protection, and they could associate with a Redfin to facilitate the consummation of their purchase to “save money”. Why won’t they? They have those “job-things”. They have families. They have many obligations, many interests, and limited time. Jeff Turner said it best. He is certainly knowledgeable and capable enough to do it himself, but he doesn’t want to be disintermediated. For me, I could certainly re-roof my home given enough time to research and implement the project; I’m a smart girl. I simply choose not to. I find it a much wiser, much more mature approach to pay someone to do what they do so that I can focus on doing what I do.

    Which leaves us with the Jetsons. If I am correct in my assessment that this is indeed the audience to which Redfin wishes to perform, I think they may find some initial applause, but there will be no encore. Our children, teenagers, twenty-somethings are going to one day find themselves with those “job-things” and with families and with social interests… and with limited time.

    Why did Glenn schedule a meeting with me? Redfin is coming to San Diego. Why did he think it was important that he tell me personally (immediately prior to his scheduled meeting with the San Diego Union Tribune)? Free marketing, of course. I have dutifully obliged. Now I am looking forward to hearing just how he plans on shaking the very Bedrock of our industry.

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    To the attention of Mr. John and Ms. Jane Sucker, taxpayers: You’ve been had . . .

    Sorry you were the last to know…

    From the Las Vegas Review Journal:

    The Las Vegas Monorail saw ridership collapse by more than 30 percent in 2006, capping a disappointing year with its worst ridership month ever in December, according to monorail statistics.[...]

    Nonetheless, monorail officials Monday took an optimistic view.

    “The monorail’s current daily ridership of approximately 20,000 riders still far exceeds most rail systems throughout the country,” said Ingrid Reisman, a spokeswoman for the Las Vegas Monorail Co.

    The good news for taxpayers in Nevada is that they haven’t — yet — been stuck with the bill for this white elephant. Don’t you wish you had good news where you live?

    Tell the truth: Wouldn’t you be willing to settle for an accurate accounting of the taxpayer subsidized losses of your local mass transit system…?

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    The Savvy Investor: Watchouts for New Market Investing

    You may have noticed my absence Thursday and Friday, while I was in sunny Greensboro, North Carolina (sunny as oppose to Ithaca, NY). While the trip was a short four days, I met tons of contacts and had a very interesting introduction to the market. There are so many things to talk about, I am going to break them up by topic and try to write them up over the next couple of days. Today, I want to talk about the savvy investor.

    I began the journey meeting my agent at the airport. I worked very hard in selecting an agent that I thought would offer me a good look at the market, with an objective opinion on pricing. My goal is to always try to choose an agent, who has experience in the market and is hopefully equally savvy (or more so).

    The first problem I encountered right away was a language barrier. I thought cap rates were the universal language, so I assumed that all commercial pricing would be based on local cap rates. Wrong! My agent informed me that the pricing assumptions in Greensboro were based on an assumed appreciation rate of 1-2.5% a year. Interesting… As I stretched my mind to try to understand this concept, I made an assumption that rents would be increasing by at least that or that despite what I saw with my eyes there was a rush on small apartments in Greensboro. Of course, neither was the case.

    Interestingly enough, when I made some calculations based on my own models most of the properties I looked at were in the 6.5-7.5% cap range. Although the rates seemed very aggressive for the Greensboro area, every property I looked at fell into this range. My next stop was a commercial mortgage lender. As I sat down in his office, I wondered if everything I had learned in life and in school did not apply in the town of Greensboro or if other investors were just plain crazy. I say this specifically because of all the properties I looked at only one of them was actually making money year over year.

    At last, sanity arrived. The lender specifically said that cap rates in the area should be in the 8.5-10.5 range and that they were typically cash flow lenders. Additionally, he mentioned that many investors had refinanced and refinance appraisals tend to me far more aggressive than other appraisals. After several more reassuring local tips, I headed back to my realtor armed with more local knowledge. Taking the bull by the horns, I ran my cash flow numbers by her and let her know what I was willing to bid on the properties. And the dance begins. Unfortunately since my bids are 80% of asking (or lower) I am not sure they will be considered. Based on the time on the market data, I am hoping investors will be more eager to sell than their prices suggest. All of my bids are fair, data based offers and I have specifically let my realtor know they are my final offers. This is a strategy that I am testing, since I have never encountered an area with such high mispricing.

    This entry is entitled the “Savvy Investor” because I can only imagine the trouble I could have gotten into out here if I was not prepared. Additionally, my initial thought when looking at the market and their practices was to pack up and get home early to save my weekend. Luckily, I had meetings scheduled with a variety of people: mortgage brokers, commercial lenders, other real estate agents, and local investors. Each person’s perspective added to my knowledge of the market, making me a more informed investor. After meeting with everyone, I am convinced that there is value here for the savvy investor, however; that value is going to be hard to find.

    Key Learnings….

    • Never question what you know, but listen and learn as much as you can
    • There is value everywhere, despite what might appear on the surface
    • You are the only one who has your best interest in mind
    • Talk to everyone about everything.
    • Be patient. Never be so eager to jump into a market you forget what you know about the fundamentals of investing.
    • Take everyone’s perspective in context: Agents sell things, commercial bankers lend money (cautiously), mortgage brokers connect two parties, etc. Understanding motivation behind advice helps you weed out their spin on information.
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  • 4 comments

    Transparency And The Wizard Of Oz

    OZ’S VOICE: Do not arouse the wrath of the Great and Powerful Oz! I said — come back tomorrow!

    I bought my first house in 1984 when I was 22 years old. It was in Speedway, IN. I do not remember much about the detail of the transaction, but I do remember sifting through the classifieds of the newspaper, trying to get a feel for what I might be able to afford. I remember feeling lost. I didn’t know anyone in the real estate industry or where to begin, so I began calling around for someone to assist me. I had no clue what to look for. If someone had said, “come back tomorrow,” if I wanted the information, I would have had to come back tomorrow. How else was I going to get what I wanted?

    When I look back, I’m amazed at how little control we as consumers had over what we were shown. I don’t remember giving it a second thought at the time. The real estate agent was like the Great and Powerful Oz. I was just happy to have a sitting.

    DOROTHY: If you were really great and powerful, you’d keep your promises!

    OZ’S VOICE: Do you presume to criticize the Great Oz?

    [Toto pulls back the curtain to reveal the Wizard at the controls. The Wizard is unaware]

    OZ’S VOICE: You ungrateful creatures! Think yourselves lucky that I’m giving you audience tomorrow, instead of twenty years from now!

    [He turns, looks and sees that the curtain is gone -- reacts and turns back to the controls]

    OZ’S VOICE: Oh — oh oh! The Great Oz has spoken! Oh — Oh…

    [The Wizard pulls back the curtain]

    I get it. The Wizard had a great gig. Who’d want to give up being the Great and Powerful Oz? I know why he’d want to pull back the curtain. I know why he’d try to pretend no one saw him. Wouldn’t you do the same thing?

    And I can understand why real estate agents were reluctant to move boldly to the Internet, to give up the information. I mean, for goodness sakes, they were in control. They had a seat in the throne room all to themselves. I can understand the fear.

    OZ’S VOICE: … Oh …. Oh ….

    DOROTHY: Who are you?

    [The Wizard peers out from curtain, then ducks back out of sight and his voice booms out again]

    OZ’S VOICE: Oh – I – Pay no attention to that man behind the curtain. Go – before I lose my temper! The Great and Powerful Oz has spoken.

    Enter the Internet… and the flood of information… and the consumer behind the curtain.

    [Dorothy pulls back the curtain to reveal the Wizard at the controls]

    DOROTHY: Who are you?

    OZ’S VOICE: Well, I — I — I am the Great and Powerful — Wizard of Oz.

    DOROTHY: You are?

    WIZARD: Uhhhh — yes…

    DOROTHY: I don’t believe you!

    WIZARD: No, I’m afraid it’s true. There’s no other Wizard except me.

    SCARECROW: You humbug!

    LION: Yeah!

    WIZARD: Yes-s-s — that…that’s exactly so. I’m a humbug!

    DOROTHY: Oh …. you’re a very bad man!

    WIZARD: Oh, no, my dear — I’m — I’m a very good man. I’m just a very bad Wizard.

    SCARECROW: You’d better be good enough to send Dorothy back to Kansas!

    And so that is where we find ourselves today. The Great and Powerful Real Estate Wizards have all been exposed. The veil has been pierced. The curtain pulled back. And the natural first reaction is anger. We say, “Oh, you’re very bad!” Why? Because we still want what we went looking for in the first place.

    And the Scarecrow is right, you’d better be good enough! Because you have no curtain to hide behind now.

    I’m sure you remember how the story ends. The Honest and Humble Wizard uses his wisdom and experience to do what the Great and Powerful Wizard could never have done. He embraced the forced transparency. He gave them his experience and he helped lead them to EXACTLY what they were searching for. And he did it in a way that empowered them at the same time.

    But our story has more than one Wizard. And more than one ending.

    In our story, each exposed Wizard gets to decide how they’re going to react to the curtain being pulled back. Therefore, I’d like to make a suggestion to all of you Wizards out there. You would do well to react like the Wizard of Oz. Show us your true self. Don’t pretend the curtain is still there. Lay it all on the line. Let us see you and know you. Tell us the truth. Use your wisdom, knowledge and experience to help us find what we’re searching for.

    If you do, you’ll earn our respect and admiration. You’ll also earn our business. If you don’t. We’ll find a Wizard who will, or be forced to find another way back to Kansas.

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  • 24 comments

    A Selfish Case for National Originator Licensing

    There is a movement to create a national licensing platform for loan originators similar to the one the National Association of Securities Dealers (NASD) requires for registered representatives.

    Supporters of this movement claim that originators must be licensed because the quality of advice given to the consumer is woefully inadequate. Those supporters cite a need for background checks, testing for professional competency, and continuing education to protect the consumer against predatory lending and unsuitable loan recommendations.

    Opponents of this movement,, most notably, the National Association of Mortgage Brokers (NAMB), claim that a national licensing platform is “fatally flawed” because federally-chartered banks and their subsidiaries are exempt from any regulation other than the Office of Thrift Supervision (OTS). They argue that while they support it in principle, unless the banks “level the playing field” , licensing is unfair to the independent originator.

    I’m all for the national licensing, in spite of the controversy, but not for the reasons you might think.

    Will national licensing reduce the number of originators out there? Sure it will. You can’t swing a dead cat without hitting an originator in Southern California today. Everybody has a business card with “mortgage” or “financial” in the company title. The consumer has never had the number of loan choices as she has today. Consumers know at least 2-3 people “in the biz” and that gives them choices. I support the effort to nationalize licensed originators because it will dramatically reduce my competition.

    Will licensing protect the consumer? Everybody complains that predatory lending is driving up foreclosure rates. Foreclosure rates are well below that average (although they have significantly spiked from the historical lows of two years ago). The fact is that over 95% of the mortgagors are doing just fine. Should the consumer be denied choices and face rising costs to subsidize the fringe borrower in trouble?

    Will educational standards increase the service offering to the consumer? Lending is becoming a specialized business with originators defining certain niches. The era of “generalists” is coming to an end due to the sheer magnitude of loan programs available to the originator. Successful originators are specializing in various segments of the market and that has proven helpful to the consumer. Creating a “mortgage originator” license will reward general knowledge, shift the burden of expertise back on the funding lenders, and ultimately drive up the costs of loan origination.

    Licensing creates implied trust in the practitioners by the public. This is where the NAMB misses the boat. They are spending so much time fighting the “fair playing field” issue that they are missing the big picture here. They should embrace this initiative and start a public awareness campaign AGAINST the banks. I can see it now…”They all want your money…only a licensed professional can protect you from them!” Everybody hates banks; let’s make them the bad guys.

    Originators have no fiduciary relationship with a customer because the customer has the right to shop credit choices. You don’t believe me? Just read the NAMB Origination Agreement. Fiduciary relationships are established when a provider and a consumer enter into an exclusive agreement. This eliminates the consumer’s ability to shop loan choices after she has committed to an originator.

    Now I’m not really a cynic. I’ll support this initiative.. I can strap on the tie and suspenders and pontificate about consumer protection and raising the standards of the industry. I’ll smoke a pipe and bandy about buzzwords like “Better Choices Initiative” with the best of them. It’s easy to do when you know that the result will be less competition, less work, and higher margins under the blanket of consumer trust.

    Maybe I’ll renew my NAMB membership if they get on board.

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    It’s Time To Take The Lead — Let’s Turn The Lights On Now

    Growing up I remember the almost genteel civility practiced by my grandparents and their generation. Topics that today would more likely than not incite harsh tones and words, were discussed, even debated without rancor or a mean spirit. I handle myself with their model in mind. Sometimes my calm demeanor based upon rational thought triggers those who aren’t happy without either drama or the spotlight, to turn up the heat.

    When this happens ‘in person’ I’m almost always successful in steering the conversation to calmer waters, or to its end. If it’s a phone conversation, I still succeed at that more than not, but less than face to face.

    Anonymity in my experience can tell much about a person’s character. I was raised the old fashioned way. In our family you were just as likely to be scolded or given a quick swat on the butt by your aunt as you were your mom. We were taught that the true test of character is what you do when nobody’s watching. Of course with five ministers in the family, we all pretty much believed we were never really unobserved. :) We behaved — even without witnesses. The lesson? Good character isn’t good only when the camera is on.

    Which brings us to blogs. I’ll be brief and to the point.

    Anonymity breeds false courage in some. They use this ability to become invisible to say things in print they’d never dream of in person. Most of them in real life have been dealt significant disappointments, mostly in real estate apparently. They fancy themselves as Lone Rangers fighting the good fight, fearlessly lobbing grenades at people whose good character allow them to write their thoughts (posts) in a public forum — and sign them with their real names. Their blogs not only identify who they are, but generally have an ‘about’ page which goes into more depth. In other words bloggers as a group, at least in real estate, are pretty transparent. Many even have their pictures on their blog’s home page. Character, pure and simple.

    I’ve tried Grandma’s approach. Treat bullies and cowards with respect she taught us, and they’ll respond in kind. As a child I saw her do it many times. She was amazing. I wonder how she’d handle a comment that was purposefully insulting, meant to incite, without a shred of respect, and vulgar? Nothing empowers a coward more than the cover of darkness. By definition a bully is a coward. The problem is no matter how harshly they are confronted, since they’re totally protected by the guarantee of anonymity, which of course a blog provides, they know they can never be held accountable for their cowardly behavior.

    I believe it’s time to take the lead, and require commenters to be fully identified. I encourage all real estate related blogs to do the same. Enough is enough. Cowards contribute nothing of value, so we’d be adding by way of subtraction. With the light turned on brightly only the cockroaches will scatter.

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    Googling for Pizza

    We had the extended family over for dinner last night. Being as it was (a Sunday), and being as I am (a real estate agent), this wasn’t a home-cooked foodfest, but Pizza Night. I always dread these gatherings, not because I don’t enjoy the company, but rather because I always suspect the “company” would rather be in pre-op than at my house knee-deep in take-out food and dog hair.

    During the course of the evening, one of our cousins who we shall call “Barry” (we shall call him that because that is his name), was explaining how he had Googled me prior to his arrival because he couldn’t remember how to get to our house. Now, keeping in mind that Cousin Barry in a technical graphic designer and has some serious background in all things internet, my initial reaction was along the lines of exactly why he thought the keywords “Kris Berg” would return a link to the Mapquest driving directions to my home. Like much in life, we will just take that one on faith.

    It is what Cousin Barry did find on his search for the pepperoni that I found amusing. He said, “I found your Blog”. Before I could fully puff my plumage with pride, he asked, “What’s up with the dog?”. (Insert image of befuddlement followed by getting-a-clue head bob). Ah! He found the Bloodhound Blog.

    I consider this a victory of monumental proportions. When I started my own blog last April, I set baby-step goals, the first being to achieve search engine recognition. In the past eight years or so of having a fairly popular (locally), static website, searching for my name produced nothing at all related to me. Curses to those other imitators who share my name! Within a mere eight months, due entirely to blogging, the outcome is much different. Plug my name into Google this morning and four of the seven first page links are to me in some fashion (my blog, my website, the Bloodhound Blog, and Technorati). The other three spots sadly belong to some jazz music writer/arranger by the same name. Go to page two in the search results (where we know no man really goes), and four of those links refer to me as well: MyHouseKey.org, the Northern Virginia Real Estate Guide, Ubertor Blog, and Urban Digs. The remaining three hits belong to that confounded other Kris Berg. I just may have to take away his metronome.

    Here’s the point – This is cross pollination (contamination?) at its best. It’s admittedly a baby step. If someone wants to find me, they can. The next, obvious step is to allow someone to find me who is looking for someone like me, an experienced real estate agent specializing in San Diego. I have seen much debate about the value of blogging for lead generation. If increased exposure through successful search engine placement is the result, isn’t the added exposure and perceived credibility important? As we are all in our blogging infancy here, the answer will only reveal itself over time.

    In the meantime, I believe that blogging and the resulting improvement in search engine placement will serve an important and often overlooked role, that of minimizing lost opportunities. For now, I know that Cousin Barry can find dinner, and someone searching for Kris Berg, whether they know me or know of me, can find me. Food for thought.

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    Derek Burress hits a grand slam with the Carnival of Real Estate Investing

    Would you like to see a grand slam blog carnival presentation? Take yourself to Real Estate Perspectives for The Carnival of Real Estate Investing. Our own Michael Cook came in first place with The Right Time to Buy: An Investor Perspective, but I would rave about this carnival even if we hadn’t won. Host Derek Burress took the job seriously. He put in a lot of thought and effort to produce a carnival that is fun, funny and informative. Bravo!

    My wife and business partner Cathleen Collins judges the Carnival of BloodhoundBlog, our own weekly in-house celebration of quality weblogging. Her pick this week is the Russell Shaw podcasts (Parts I, II and III). Cathleen and I both worked on those (for instance, she dug out all the links), but the real credit goes to Russell, who simply exudes wealth-building power.

    As a reminder, BloodhoundBlog will be hosting next week’s Carnival of Real Estate and the February 19th Carnival or Real Estate Investing.

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    Touchdown in Greensboro: What makes a good investment?

    The rubber has finally hit the road. After a lot of researching, speaking with agents, and working with mortgage brokers, I finally touched down in Greensboro. Armed with financial models, a few perspective properties, and a lot of appointments, I set off to find a good investment. Today, I want to talk briefly about what kind of property makes a good investment.

    Keep in mind that a good investment for me may not be a good investment for you. Before you begin to look for your good investment, have a good understanding of your goals, timeframe, risk tolerance, and expertise. These three aspects make up the first step to finding a good investment. Investing should always be goal oriented. Goals help you focus your investing. If your goal is to become a millionaire in a year (not recommended) then your investment strategy needs to be very aggressively focused on leverage and Net Present Value (NPV). On the other hand, if you want to save for your child’s college fund or your retirement (Thanks Jeff), you may want properties that generate consistent cash flow in markets with a lot of potential buyers (easy exit and entry).

    Additionally, timeframe and risk tolerance come into play as well. One person might be a skydiving, fast car driving risk loving young man, while another might be a little old lady looking to supplement her pension. A good investment will clearly be different to both of these individuals. While this is nothing new, it is surprising how many people do not truly understand the risk behind investments. Many people look at real estate investments as very low risk. Perhaps if you are buying core buildings in a major market, you might be able to be fairly certain of your cash flow. However, to capture those certain cash flows investors pay a significant premium up front in the form of a very low cap rate.

    Besides meeting the above requirements, good investments are not obvious. Good investment properties require looking at a property and seeing something different than 90% of the investors who would normally look at that property. Why do I say this? Let me give you a simple example. If you were in a market where all the houses were selling for $100,000 and all of a sudden some clueless person decided to list their house at $80,000, how long do you think that house would stay on the market? Simple answer, as long as it takes an agent to write and fax a contract. However, lets take the same example and assume now the house is listed for $60,000, has broken windows, a leaky roof, no doors, and an overgrown lawn. Even though that’s only about $20,000 worth of work, the house might sit on the market for months until some savvy investor with a vision came to make the purchase. Keep in mind the hotter the market, the bigger investors’ visions become. There are tons of other examples like this. The essence of rehabbing and repositioning buildings is good vision.

    Last, and probably the most controversial assertion I will make here, good investments make sense before financing. Financing is a great tool to improve returns, but creative financing can be very risky. Save the most aggressive investors, real estate deals should be profitable before financing because of the uncertainty of the real estate market. Even with Non-Recourse loans, a buyer still puts their credit (with at least one institution), relationship, and reputation at risk when pushing the financing envelope. Financing is one of the many tools in the investor arsenal, but it should not be the first life line an investor reaches for when the pickings are slim.

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    Time Really is Money

    This is a message to all the real estate agents out there. Timeliness represents professionalism. I bring this up today because I am still getting calls from emails I sent over a month ago to agents asking about assistance finding a property in Greensboro. From an investor prospective, first impressions are everything. If it takes you a week (God forbid a month?!) to get back to me with a simple request, why would I work with you?

    When I look to buy an apartment complex, I know what I want and I always want to close quickly. An agent should be an ally in this process, not a stumbling block. Perhaps some agents out there think that the perception of busyness shows perspective buyers that they are hard workers. While that may be the case with some buyers, many buyers (especially me) are turned off by this. Additionally, since agents typically work hardest for buyers in their first month, what are buyers to expect after the second or the fifth month?

    I’d like to think that I am easy to work with (my wife might disagree, but luckily I am the writer here). I do all of my financials, have good credit and easy access to financing, and know exactly what I want in terms of property. An agent could make an easy commission by simply spending half of a weekend showing me properties. Since I am sure many buyers try to portray this, I can understand why agents might be caution. But, is that an excuse for not being professional and simply following up the next day?

    I will very soon be employed as an investment banker. I cannot imagine what kind of business I would be doing if I waited a week or more to call my leads back. Bottom line, a simple three minute phone call can get you off on the right foot. In this business reputation means a lot, and being elusive will send your reputation in the tank very quickly. Even the most outlandish request deserves the courtesy of a three minute phone call.

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    Zorro rides again . . .

    Two sightings, at least, in Ciudad de Los Ángeles

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