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Archive for the 'Ask the Broker' Category

Ask the Broker: Has going FSBO lost its fizz?

This came in over the transom. I’m not answering the whole question. To say the truth, I feel as if I’m being shopped with every conceivable infraction in the HUD handbook. So, you, too, please do also exercise restraint on the subject of commissions. For all of me, the FSBO question is more interesting, anyway.

From my interlocutor:

We are selling our home in a very upscale part of Atlanta. We want to do it “by owner” using one of several services advertised on line. Who pays the buyer’s agent and what percentage? We’ve been told its negotiable but too little and no one will show it. The home will sell in the $400,000 range if that makes a difference.

I start here: I want to know more about “one of several services advertised on line.”

I don’t know the real estate market in Atlanta, but this strikes me as being a very poor time to sell without the MLS. If the “services advertised” are limited service MLS listings — which is as far as anyone should go, in my opinion, down the “by owner” road — then those listing agents can address the commission questions.

The seller will definitely be paying the buyer’s agent, of course: If you’re not paying for the product, you are the product — an idea that never seems to occur to home buyers.

But I think it would be a huge marketing disadvantage to forego the MLS. In the age of the internet, an MLS listing is more valuable than ever before. (I think this has come up lately in the Dipshit Broker News, but I stopped following that crap years ago.)

But even more than that, I think the right full-service listing agent can more than repay his marginal cost. The house is unlikely to attract a lot of attention if it is not listed in the MLS system, but, even then, if it is not marketed to its fullest advantage, it will sell more slowly and for less money than it could have.

My take is that most listing agents aren’t worth a damn, but the right agent will bring home more money than he costs with a lot less aggravation, a double profit. For Sale By Owner as a business model has made less and less sense to me in this seemingly endless downturn. By now, paying a buyer’s agent but not a marketing agent just seems like a colossal error to me.

That argument is probably an easy sell in this crowd, but I’m interested in hearing about if I’ve gone wrong.


Is This Normal? (What Seattle Real Estate Agents Earn)

We’ve spent plenty of time trying to figure out what’s fair to pay Redfin agents. As part of that exercise, we analyzed the gross commissions for all Seattle-area (King County, to be precise) agents who closed at least one transaction over the past year (May 12, 2009 to May 11, 2010). The data surprised us, so much so that we thought we’d ask this community if we’re making any obvious mistakes.

We sorted the agents by gross commission, assigning percentiles to each. When we didn’t know the commission on a deal, we assumed it was high: 3% for each side.

Agents at the 50th percentile of pay earned $29,820 in gross commissions. Agents at the 75th percentile earned $75,018. You don’t hit $100K in commissions until the 82nd percentile. Then we graphed the data, showing the gross commissions on the vertical axis, and the percentile of the agent earning those gross commissions on the horizontal axis. The result was a hockey stick:

But then we reasoned that a lot of part-timers are closing one or two deals on the side while working another job; so we excluded all the folks who earned less than $25K in gross commissions. This shifted the graph to the right a bit, but otherwise we still saw a very small number of agents earning a huge proportion of the total commissions in a market:

Then we asked ourselves how much money a good agent — say, someone earning $100,000 in gross commissions — has to shell out in costs each year:

Type of Expense Traditional Agent, Annual Costs
Brokerage fee $10,000
Health insurance $10,500
Marketing $10,000
Social Security, Medicare Taxes $6,500
Transportation $3,600
Cell service $1,200
Equipment $1,000
Dues, education $783
IT $1,000
Total $44,583

All told, the data left us scratching our heads. In a fairly wealthy market where sales volume has been increasing, a good agent — someone among the top 15% of his peers — is probably netting less than $60,000 per year. Does that sound right?


What drives your fear of flying solo?

airplane wing & fluffy white clouds on a beautiful blue dayIn my endless quest to dispel the many myths surrounding what it takes to thrive as an independent broker, I’ve compiled a list of the top ten ways agents deceive themselves into thinking that they can’t – or shouldn’t – set up shop on their own.

1. Creating a “sense of community”

Unless you’re actively recruiting, the last thing you probably need to be doing is hanging out at an office chit-chatting with other agents. Sure there’s endless entertainment and comic relief swapping horror stories and real estate tips and yes, you’re building rapport with other agents that could help a future deal go more smoothly than otherwise. But let’s face it, ultimately you’re just wasting time. If you need to create a sense of community, being active in your local community is a far better, more authentic, alternative. Volunteer for Habitat for Humanity or another cause you have a passion for. Create a true sense of belonging while building a meaningful network of contacts outside of – but related to – real estate. If you want contact with other agents use social networking sites like Twitter, Facebook, LinkedIn, and ActiveRain to interface with agents outside your market. You may even find you feel freer to share with those who aren’t your direct competition and with whom you may wind up being able to refer business to in the future.

2. Access to real estate expertise

Early in my career I did several transactions involving options to sell that only one broker in my company knew how to handle. Since there is an endless number of ways that transactions can evolve, there are many experienced, competent brokers who don’t know or who don’t have all the answers. That’s one of the most attractive things about real estate, in my opinion. Never a dull moment. Granted, I don’t advise anyone to go out on their own until they have a critical mass of transactions under their belt. For me personally I felt that number was about 100 transactions (five years) but your mileage may vary. I am always shocked when people with six months or a year of real estate experience think they’re prepared to go off on their own. Contrary to what you might tell yourself, however, you don’t need a broker to ensure access to expertise and advice should you run into a conundrum. Your local association dues should cover something known as the Legal Hotline.

Consult your association’s legal hotline or call another trusted broker for advice. The most important thing is to recognize when you don’t have the knowledge or expertise to handle something on your own. When you contact the Legal Hotline you’ll speak to an attorney (whoever’s on call) who will be very sharp, professional, and to the point. You’ll save time and energy dealing purely with the facts and wind up getting to the nitty gritty of the matter much more efficiently than waiting for a busy broker to call you back.

In my endless quest to dispel the many myths surrounding what it takes to thrive as an independent broker, I’ve compiled a list of the top ten ways agents deceive themselves into thinking that they can’t -or shouldn’t – set up shop on their own.

3. Access to quality training

There are endless quantities of training available. Frankly, much of it is overrated. Doing real estate is the best way to learn real estate. Talking to your clients and soliciting their feedback is the best way to identify areas for improvement. The more transactions you’re involved in the greater your knowledge, expertise and the breadth of your experience.

Incidentally, Keller Williams uses training as a recruiting tool. Go ahead and attend their training sessions. Honestly, they won’t mind! In fact they’ll love you for it because when the room is filled it makes them look good. You don’t have to join them and they won’t pressure you to do so (okay, admittedly you might have to do a little fessing up so they don’t waste their time trying to recruit you). There are also books, courses, tapes, streaming audio, podcasts, and more (some free, some not) that you can sign up for on an ad hoc basis. If you’re like me you’ll find that you can attend all the courses in the world but if you don’t bother implementing what you learned, it can be a colossal waste of time and money. If you do find the need to collect designations (like I did for awhile before I knew better), focus on implementing a few tried & true techniques, then add incrementally. Most people don’t use a fraction of what they learn in courses. Remember, the real estate training sector is a huge money-making industry. You’ll get a certain amount of valuable training just fulfilling the semi-annual requirements (which have recently increased) required to maintain your license.

4. Access to referrals

Is a steady stream of referrals keeping you from going out on your own? I doubt it! Whether your broker is giving you lots of referrals or not, practice generating all your own business for a few years. I did this for 4.5 of my first five years before I was finally able to admit to myself that the few referrals I was getting weren’t really worth taking when I could get plenty of business on my own. Don’t accept referrals unless you are absolutely desperate and have tried everything else first.  Ultimately if you can’t generate your own business and have to rely on your broker, you may not be cut out for real estate sales. Don’t rely on floor calls or walk-ins either because you won’t have them when you’re on your own working out of a very small office or your home. Learn to work independently and generate the bulk of your own business! You’ll net more and be better prepared to go off on your own.

5. Access to a brick & mortar presence

Real estate offices are becoming increasingly mobile. Realtors often work from home or in the field and go to the office only when in need of meeting spaces. Admittedly, when I was considering going off on my own, the prospect of not having an office to invite clients to really kind of freaked me out. But I quickly realized that I could check with my local libraries, title companies, and banks about using their offices instead and it turned out they were all more than happy to let use their conference rooms anytime I wanted. One lender even complained the other day that I wasn’t using their office enough! Do realize that they’re hoping you’ll send some business their way at some point but that’s likely to happen anyway and to be expected. After all, what virtual business partner wouldn’t want that? The bottom line is you may think you need a brick and mortar presence but you really don’t. The business of real estate takes place at showings, listing appointments (homes), and closing tables. Maintaining an office drives up costs, results in duplicate files, extra trips to your “other office”, etc. Also, consider asking your clients (once you’ve got an established relationship) to drop by your house. You’ll keep your home and home office more organized while strengthening the bond with your clients. Your clients may even get decorating ideas! You’ll also save time and money running around. And best of all, no more earnest money getting lost in the mail!

6. Access to technology

I’m lucky that I have a technology background and acknowledge that I may be more the exception than the rule. It is doubly sad, therefore, that many brokers supply technology that doesn’t meet even the most basic requirements of technology-dependent agents. For example, the webpage you’re assigned when you work for a broker is typically nothing more than brochureware lacking any real functionality. You’d be surprised how easy it probably is to outrank your broker’s site with a simple, well-designed WordPress blog. Also, most applications are web-based now so you shouldn’t have to pay high monthly technology fees for outdated, poorly designed software. For office applications use Google’s suite of free web-based applications. For hardware support call the Geek Squad or buy an extended warranty. There’s built-in support for Paragon that comes with your MLS dues. All you should really need is a fast connection to the Internet and a good data plan on your cell phone. For a virtual receptionist try using a service like They’re savvy, professional, and cost-effective. And there are loads of licensed virtual assistants who can help process your transactions. Bottom line: duplicate office setups are costly and cause agents to be tethered to an office away from home that zaps productivity. That makes them less flexible and less able to service buyers and sellers who need things on short notice. Get organized and mobile so you can be  relied upon for a quick turnaround when clients have questions, want to list their home on short notice, or want to write an offer.

7. Ability to leverage a credible brand

Virtually any brand, so long as it’s unique and distinguishable from other brands, is differentiating and therefore able to capture the attention of the marketplace. Moreover, consumers are attracted more and more to idea of “buying local” and supporting local businesses (and therefore their local economies) rather than supporting large chains. I recently landed a listing because the client caught sight of my yard sign and noticed it was new, different, and locally-owned and operated. She didn’t want the sign in her yard to look like all the other signs in the area. She wanted her house to stand out and felt my sign would help her accomplish that. She interviewed two competing firms but felt that my pricing was more realistic, my staging advice more comprehensive, my branding more remarkable, and my roots in the local community more deep and committed than the competition. Operating under a big box “name brand” broker promotes that broker’s brand and does nothing to distinguish you or your services. Try asking your clients if they care which broker you work for. I guarantee the vast majority, if not all, do not care one bit. People hire a specific agent because of the rapport they build and how they convey they will do business with them, not because they hang their license with a certain broker.

8. Avoiding expensive start-up costs

You can start your own brokerage company for less than the commission you’d give your broker on one $100K sale. That’s right. For well under $1,500 you can have everything from business cards and a website to custom yard signs and office equipment. You can spend a lot more than that but in my opinion that is a choice, not a necessity. I do recommend that you have a few month’s living expenses saved, however, in case you have a dry period (this is true even if working under another broker). The last thing you want to do is make a client feel pressured to buy so you can get paid!

9. Avoiding expensive operating costs

My operating costs have gone way down since going solo. I no longer have to give my commissions away to my broker, I no longer have to pay desk fees, technology fees, or transaction fees, it’s cheaper to print color copies at home, it’s cheaper to order my own sign installations directly, business cards are less expensive (another “profit center” eliminated), and I no longer spend money on gas to commute. There are loads of other operating costs that have been eliminated too such as being hit up for money for birthday lunches, gifts, office treats, and more!

10. Fear of agents avoiding my listings

Buyers are attracted to yard signs, open houses, and full-featured websites with MLS search capabilities. They find listings online and ask agents to show them properties. If an agent makes excuses not to show certain listings, they run the risk of losing that buyer.  Cooperating agents cannot realistically get away with not showing competitors’ listings that their clients are asking to see. No one is dumb enough to screw themselves out of a commission in an attempt to somehow “punish” an agent who has gone solo. This is a preposterous supposition with no basis in reality. Since going solo I have more listings than I’ve ever had in my career and everyone under the sun, from every conceivable brokerage, has shown my listings and brought me offers. It’s just silly to think that an agent would discriminate against another agent because they work for a competing broker.

Can you think of any other excuses – or outright lies – that you keep telling yourself to drive your fear of flying solo? Comment here or direct message me at @jolenta on Twitter. I’d love to hear what you think!


What’s the best way to use ALT Tags on a web site?

I usually use a dozen or more photos for EACH neighborhood, and want to include neighborhood name in each Alt Tag:

For Instance: Berkeley 4th St “what it is”

Berkeley 4th St Spenger’s

Berkeley 4th St Peets Coffee

Berkeley 4th St Amtrak Station

Will the repetition of “Berkeley 4th St.. ” in the beginning (or end) of the Alt Tag be considered keyword spamming if EACH of the 12 photos on that web page has an Alt Tag starting (or ending) with the same expression?



The Resistance Is Where The Action Is: Do what Others Don’t.

So I’m designated the ‘cold calling guy,’ on BHB.   Fine fine fine.  Also cool that Jessica Horton said that she’ll always be calling her 4,000 past contacts.   That’s cool.  But I want my database to be about 50 people that I do loads of stuff work for and with.  The 50 best people.   To get there, there has to be planned churn.  I want to continuously improve the kind of customer I have.   Not till my client list includes Warren, Bill, Steve, Rupert…will I stop.   If I was a Realtor®, I’d not stop until EVERY bank CEO, hedge fund manager, and millionaire asked me to list some houses.

I at least admit that I’m here to sell you something.   Openly.  It’s been called the ‘implied accusation,’ here before.  I’m friendly, but I’m not yet your friend.  I tell you why I’m calling in 2 seconds.  (Oh, how many of those’ how are you doing today,’ calls have you had…)  More honest than beating around the bush, and more pleasant for both me and you.  I don’t drop hints, I’m here to help, and I’ll need to be paid for it. And I’ll help, and you’ll be happy.  It kind of sucks when you know someone wants to sell you but doesn’t have the balls to ask you.

Since my last post on Twitter, my account has nearly doubled in followers, and I’ll be at 1,000 followers sometime this week.  (Follow me at @genuinechris ).   I’ve limited myself to calling 10 people a day that are new followers because I can’t connect to everyone…but I’m calling…it’s fun.   I am checking out twitterhawk to do it more, and yes, I’m throwing folks in Heap…when I like ’em.

The reason that people don’t call more, is mostly that they are cowards.   There is magic in doing what others won’t. Almost all the time, if you can summon whatever it takes to do that, you’re going to separate from the pack.  Or herd, since we’re all pack animals.    Any place where people resist, there’s probably money to be made.  Something noone wants to do?  Something mentally hard?  Do it better.

My Wife Rejected Me In Bed.  No Doubt, She’ll Do It Again.  No Stranger Can Hurt Me.

The resistance to cold calling comes down to fear of rejection.  Plain and simple.   They are afraid someone will disapprove of them.  And most of the people that I connect with, I’m trying to HELP.  Folks invent moral reasons: “Oh, I would never do that,” they say, “because I’m above that.”   Nietzsche would have a fit.  I’ll bottom line it: A steady diet of personal, high touch connections is about the fastest way to grow an excellent business.    And if you’re putting yourself out there–it’s 100x more honest than all the mushy BS marketing that people regularly do.

Rejection?  As far as that goes?  None of these people know me well, none have seen my body of work, and none of ’em matter much.   And look…from time to time, my wife, who does love me…has rebuffed my amorous advances.  That hurts way more than a stranger that doesn’t know me not happening to need what I’m currently offering the world. And look, I’m breathing.

The human mind–mine included–has an astonishing capacity for justifying mediocrity.   Sure, I’ve interrupted people, but I’m here–honestly–to help.  I know this.  I’m not selling b.s. websites.  I’m not having pleasant conversations.  I’m here to help, and I’m here to sell.   I don’t want to “boiler room,” anyone into working with me.  I want to help, and I want to reach out to as many people as I can.  An hour or so a day of connecting, looking for the best people I can talk to.   I can connect with about 15-16 people in an hour.  I don’t keep them.  I tell them what I do, I ask what they do.
For whatever it’s worth, right now, I’m on pace to crush the goal I set in my BHB post, and I’m far behind on connecting with you Twitter folks.   I’ll eventually catch up, but I’m doing everything in a FIFO system, so if I haven’t called or left a message, I will.   Have your credit card ready, cause I’m here to help.
So my numbers:
129 attempts.
49 connects/contacts.
75 database adds.
1 permanent friend made.
6 bids offered (overhauling blogs, mostly).
3 more to finish up on on mondy.
3 bids won
$7700 collected (paypal rocks, the 2.9% vig is worth it)
$5300 outstanding/deliverable work
ALMOST $500 per connect.
BY THE WAY…Twitter is ONE of my several sources of business.  I’ve not overinvested in time, but I think I’m going to up my call goal to 15 a day.
Failure is a choice.  I’ve made it, it’s easy in the moment, but it’s way simpler to call a stranger than to field a call from a bill collector.  I’ve done both.

Where Do You Draw the Line?

Two questions for my colleagues in real estate!

#1: How much information about yourself do you share with prospective clients? I have to ask only because Redfin has lately been working with clients who want us to publish detailed statistics on each agent, and have wondered how far we should go. Today, we publish each transaction and, if the client has responded to our survey,  the agent’s rating on that transaction.

But especially in our bulletin boards — why doesn’t Bloodhound have online discussions (it could be a great consumer resource)? — folks ask detailed questions about our business model. They want to make sure our agents aren’t too busy, our houses sell for a good price, our files are locked, our clients are happy, our lawyers are idle, our — dozens of questions! The questions have been pretty good so we have tried to answer them all, but I wonder sometimes if we’re setting a precedent that will be hard to keep up.

As the general counsel at my last job used to say in answer to almost any question (Am I going to get fired? or where’s the bathroom?): “Answering that question now would obligate me to answer it in the future…” So, when someone unknown to you starts asking plenty of good questions, where do you draw the line?

#2: how do you protect the safety of an agent visiting a prospective client in a home the client wants to sell? We had our annual company meeting Friday, and this was one question we had to defer until we could consult others. Safety has always been a concern in real estate, but since prospective clients only communicate with us online before asking for an in-home consultation, it seems like the usual precautions may not be enough.

Any help would be much appreciated!


Project Bloodhound – Advice Needed

I figured we haven’t had a Project Bloodhound post in a while and I can use some advice, so I thought I’d throw it up for discussion. Here’s the scenario first and then, after that, I’ll throw out my questions:

I’ve been asked to give a presentation to the board of Directors for the local board of Realtors next week Tuesday on the state of the mortgage market. The person who asked me is one of the owners of a local real estate firm and he’s been reading my Mortgage Market Week in Review for a long time. Without sounding like I’m patting myself on the back, I would have no problem putting together a 20 to 30 minute presentation on what’s happening in the mortgage market. But Greg Swan has taught me that that’s not good enough.

Using Greg’s analogy, I want to set the bar so high that my competition can’t compete. I want to set the bar so high that all of the members of the board (or at least most of them) go back to their firms and tells their agents that they need to at least talk to that “Vanderwell guy” because he’s where it’s at.

So, here are my questions (for those of you who are real estate agents, especially):
1. If you were going to be at the presentation what would you like to hear?
2. Is there anything that a mortgage lender can say about today’s market that will help you do your job better?
3. What else should I do or attempt to do in the 30 minutes that I’ll have?
4. What should I avoid doing?  I’ve already learned (or relearned from Greg and the Gang) that I need to make something  like this about the industry and my knowledge of it, not about me or my bank.   So, if you were reading this and thinking that, we’re on the same page.

Thank you in advance for being willing to share the collective wisdom of the Bloodhound Gang. I’ll do another post and report back in afterwards as well.

Oh, in case you are wondering, I have my own ideas, which I’ll share after some discussion hopefully starts. I want to hear what the guys (and girls) on the “other side” of the line think.

Thanks for sharing your wisdom with all of us!



Unchained Speakers, Ribak and Brady, on HomeGain “Ask The Experts”

Mitch Ribak spoke to the Barrys on Real Estate Radio USA last Friday.  Mitch started as an agent in 2001, opened Tropical Realty in 2005, and has grown his business to close 180 transactions, during the first six months of 2008,  in a down real estate market.

Mitch looks for newer real estate agents, who are personable, with a strong work ethic for his team.  He plugs them into his 100mphmarketing software after driving prospective buyers to his website from various pay-per-click campaigns. 100% of his buyer leads come from the internet (his referrals come from original internet leads).

Mitch will be opening membership in the E-Homes Realty Network later this week. What is the eHomes Realty Network?

Very simply, it’s a membership that gives independent Real Estate Brokerages the ability to have the same tools and training that the Big Franchises have for one very low monthly membership fee.  It’s your Franchise without a Franchise!

We started eHomes Realty Network after realizing that most Independent Brokers don’t have the resources, the knowledge or the time to test and determine which products will work best for their companies. It has also become clear that most Independents don’t have any formal training programs for their Agents.

If this sounds like an “Unchained” idea, it is. Mitch is offering the national exposure, training, and masterminding, to independent agents (and brokers) for forty bucks a month.  He has plans for an updated e-designation for network members.  This is what Sean Purcell calls “disbrokeration” at its finest.

Tomorrow (Tuesday), Mitch and I will be hosted by Home Gain on their first “Ask the Experts” segment at 10:00 AM (PDT).  There will be over 250 real estate professionals attending the webinar.  There is no charge for the webinar and you can register here.  I’ll be talking about mortgage financing but Mitch will talk about how to drive traffic to your website.

PS:  If you’re wondering why Mitch calls his software 100mphmarketing, you gotta hear him talkListening to Mitch talk about internet marketing is like trying to take a sip from a fire hydrant; he gives THAT much good information.  Bring a pen and paper.

PPS:  Mitch will be speaking at Unchained Orlando on November 7. Reserve your spot before the price doubles.


Save a House, Ride a REALTOR®

(If you are not a country music fan, you may have a serious character flaw, but that is the subject of another post on another Blog.  For now, here is a video that will help you “get” the title of this post.)

Save a Horse, Ride a Cowboy

Across the nation, in most markets, we not only have too many listings, we also have too many overpriced listings.  It is true in Charlottesville; it’s true in Atlanta, Austin, and Atlantic City.  I know it is true even without looking at the local statistics for all these markets because “too many listings” and “too many overpriced listings” goes hand in hand.  The basic law of economics – supply and demand – dictates that prices will adjust downward when supply is too high. 

Following that logic, what we need is a good old fashion INVENTORY REDUCTION SALE!  Can you picture this ad as part of the NAR public awareness campaign?

reduction“Hi, I’m Charles McMillan, President-elect of the National Association of REALTORS® and I’m here to announce an across the board 30% reduction in home prices.  That’s right, this is the REALTOR® Spring Spectacular event of a lifetime.  Buy before July 1st and save BIG on any home in any market.”

Okay, that’s not going to happen, nor could it.  The real estate market is not like the market for toilet paper at Wal-Mart.  In real estate, we have something like five million owners (sellers) of the “company” that would have to approve an across the board price reduction.  That’s a lot of decision makers even by Wal-Marts standards.

Some sellers have figured out the economics of the current market and agreed to price their home correctly.  Guess what?  Those are the homes that are selling.  In the CAAR MLS, homes that sold in March sold after and average of 130 days on the market (DOM).  That’s not a particularly good number, but it beats the 149 days (and counting) that the current active inventory is averaging for DOM.  In addition, a closer look at the numbers will show that many of the homes that sold in March, sold quickly; likewise, many homes that are currently on the market have been there a very long time.

My Way or the Highway

So, why are there so many overpriced homes on the market?  Is it unrealistic sellers, or REALTORS® that are willing to take overpriced listings?  Yes, to both I suspect.  Sellers, if you really want to save your house from being stuck on the market, ride the advice of your REALTOR® and agree to a proper price.  A proper price is one that reflects the current market and not one that is based on what you want/need.

REALTORS® also need to accept their role in adding to the overpriced inventory.  Most experienced REALTORS® will tell you the best thing (and the hardest thing) to do when a seller insists on pricing a property too high is to walk away.  Maybe if a seller has a few REALTORS® show them tough love, then they will start to understand that the market sets the price at which a home will sell, not the seller.  In addition, allowing a seller to overprice their home is a disservice because it generally results in a seller netting less than could have been gained with a quick sale.

In this market, more than ever, REALTORS® are in position to help the bottom line of both buyers and sellers.  Buyers need to be careful not to buy overpriced listings and sellers need to understand this rapidly changing market.  Save a house, ride a REALTOR®.


A Deficiency Judgement? In Arizona? Not Likely.

Hello again!

Have clients asking you about short sales? I know I certainly do! In fact, it’s become a big part of my business. In fact, I am conducting short sale negotiations for 3 different REALTORS, as well as 5 different clients. Unfortunately, a lot of questions have arisen lately about Arizona’s Deficiency Statutes regarding foreclosure. I say “unfortunately” because I feel somewhat less than qualified to definitively answer these questions. Greater legal minds than mine (and mine is decidedly NOT legal) will be required to put the issue to rest. I will, in spite of the danger of blatantly misrepresenting the facts, case law, and statutes, attempt to answer one (NON-) simple question:

“If I do a short sale, or my property is taken from me by foreclosure, can the bank ‘come after me’ for the difference between what the property eventually sells for, and what I owe them, including sale costs, legal fees, etc?”

First, let me point the reader in the general direction of actual legal minds on this issue. Here is a rather esoteric treatise on the subject of getting sued for a deficiency judgement. Very good read, and fairly definitive on the issue.

Here is another article, that is more user-friendly on the same subject. Now, because I have a public education, and am somewhat literate, I will attempt to provide a synopsis of the above:

In Arizona, there are two types of “notes” given for real property: a “Deed of Trust” or a “Mortgage”. Despite the common parlance of the term “mortgage,” most people in most states do not actually have Mortgages. They have Deeds of Trust. I won’t go into the differences here, but suffice to say that a Deed of Trust has three parties to the agreement, and an actual Mortgage has only two. Actual mortgages are very uncommon in most states.

Now, the remedy of a lender for a home in default depends on what type of note was used to secure the property. If there is a true mortgage in place, the lender must sue in civil court in a process known as “judicial foreclosure.” The particulars of a judicial foreclosure are not completely relevent to our discussion here, but here are a few key points.

1.) The legal fees associated with a judicial foreclosure action are substantial.

2.) A jucial foreclosure takes more time than “the other method” (hold on there. . .).

3.) A lender may sue for a deficiency judgement with a judicial foreclosure, but only in the case of non-purchase money loans. (A “purchase money loan” is one that is applied to the purchase of real property. A “non-purchase money” loan is money you pulled out of your home to buy “stuff”.

Herein lies a very poignant distinction. If you got a line of credit, and spent all the money on a new boat, fancy clothes, and a new haircut, the lender can indeed sue you for that money. HOWEVER, they will have to use the process of judicial foreclosure to do it, which I have already explained is a lengthy and costly process. In real life: probably too expensive for the lender, with very little likelihood of getting money back from someone who is “insolvent” to begin with.

If the note used to secure the property is the much more common Deed of Trust, the property will most likely be subject to a “Trustees Sale,” in which a notice is posted that the property will be sold to the highest bidder on the courthouse steps. If this happens, there is no recourse for a lender to “come after” the homeowner for money. Now, a lender, who is party to a Deed of Trust, may also use the process of judicial foreclosure to take your house away. Any yes, this does give them the right to attempt to get a deficiency judgement against the borrower. Does this happen often? No. Why? For the reasons mentioned above: it’s expensive, and time consuming.

Another option for a lender is to “forego” their interest in the home, and sue the borrower directly for the money owed to them. All of it. Lenders very rarely do this however, for the reasons stated above: it is expensive and time consuming; more importantly, if a borrower is going into foreclosure, there is a pretty good likelihood that the borrower has no money to “go after.” Also, in the landmark case of Baker v Gardner heard before the Arizona Supreme Court in 1988, the justices hold forth in the Holding & Conclusion that “. . .the legislature’s objective in enacting [its anti-deficiency statutes] was to abolish the personal liability of those who give trust deeds encumbering properties of two and one-half acres or less and used for single-family or two-family dwellings. . . The holder of the note and security device may not, by waiving the security and bringing an action on the note, hold the maker liable for the entire unpaid balance.”

So, can you be sued for a deficiency on your mortgage? Who knows! Go ask your attorney.

Disclosure: I am not an attorney, and I do not play one on TV or on the internet. I am simply an inquisitive idiot with a penchant for holding forth opinions. Have legal questions regarding your specific circumstances? Contact competent (how do you test for that?) legal counsel.


Ask the Broker: How can the seller paying the buyer’s broker’s commission be fair to the seller?

Here’s a truly fascinating question from an agent working in Nassau County, Long Island, New York. The idea of buyer brokerage is just being introduced there, and our interlocutor is understandably mystified:

I am a bit confused, to say the very least.

If I write up a listing contract with a seller, traditionally, when offering compensation to a sub-agent that agent was working in the best interest of the seller as well — working to get the seller the best price and terms.

However, If we are now offering compensation to a Buyer Broker, we know that the other agent is going to be representing the interests of the Buyer — working to get the price as low as possible.

Why would a seller agree to compensate the Buyer Broker for any part of the commission?

Where traditionally the sub-agent would negotiate the best possible price for the seller. It seems to me we are telling the seller to pay a party who is going to negotiate against their favor? Isn’t this unethical?

So far, to my knowledge, there has been one actual rigorous argument against divorcing the commissions. We do what we do for practical reasons, and I have offered practical solutions to these problems, but, so far, no one has been able to defend seller-paid commissions as a matter of equitable rectitude to both principals. If I’m wrong about this, cite the link to the argument.

Meanwhile, our interlocutor makes defending seller-paid commissions that much more difficult. I don’t think there is any way to dispute the argument that buyer brokerage, as compared with sub-agency, induces sellers to act against their own interests — even as the seller’s hands on the purse-strings provides incentives for buyer’s agents to betray their clients.

Does anyone have any thoughtful answers to these questions?

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I Want My Half

An email I received:

Dear Russell;

How many years have you been in Real Estate here in the valley? (I know it has been a long time)

We were going to build a custom home for resale in Circle G Ranches Silvercreek, which is in Gilbert. We had a lot partner that owned the lot and would subordinate it to us to get the construction loan. When the project was completed and sold, all debts would be paid and the profits would be split 50/50.

The deal did not work out. The real estate market (as you are very aware) has softened. The lot she bought in March 2006 for $485,000.00 has now appraised for $430,000.00. The lot owner feels she has suffered a loss on the lot and wants us to split the $55,000.00 loss, yet she will keep the lot and in the future either sell the lot or build a home on it.

What do you think? We think she hasn’t suffered a loss until the lot is sold and she officially suffers a loss.

Thank you for your time.

half-halfThis is my 30th year in the real estate business. I started with John Hall & Associates early in the year in 1978. Now for the far more important question, has your lot investor suffered a real loss. It depends on how you look at it. Is the “loss” real to her? I think that answer is yes. Is it real to me? Not so much.

Have prices dropped since March of 2006? Yes, absolutely. Is that lot now worth less? Maybe. But if we look at who appraisals are for we may get better insight on this issue. Appraisals are for the lender or necessary to show some other party the “true value”. They are not required by the buyer or seller. Oddly, issues like the buyer’s FICO score can be a factor in determining the appraisal amount – so – no disrespect to appraisers – but I’m not very interested in what an appraiser thinks the value is, unless that appraiser is going to buy it. There are various rules that appraisers must follow (I’m not suggesting here that I have a better set of rules in mind) and sometimes those rules can cause an appraisal to come in at a higher amount than the market would seem to bear and sometimes at a lower amount. Two years ago I could sell almost any house for more than I could get it appraised for and six months ago I could get almost any house appraised for more than I could sell it for. None of this is to suggest that those appraisers weren’t doing their jobs (per the rules they have to work with) or that I have a better set of ideas for establishing how to quantify some of the data they have to quantify for the actual lenders (the person or company who is really loaning the money and will never physically see the property). Lenders want the appraiser’s opinion to prevent fraud.

Are appraisals always supposed to reflect the current market value? Yes. Do they always do that? No.

What would be the correct agreement if your lot investor kept the lot for twenty years and then sold it for 1.5 million? Not to start a stupid argument about real estate prices – but if history continues to repeat itself (relative rate of inflation, etc.) that lot will probably sell for about that amount in twenty years. Will she owe you then half of the profit (about a half a million dollars)? What if she builds a house on the lot and then later sells it? Will you have a right to a share of that money?

Part of what is “wrong” here is that the possibility of loss was not considered when making this agreement. That wasn’t part of the agreement and now she sees that she has lost money, if she were to sell it now. She seems to like the lot location, etc. and perhaps believes that if she were buying that lot today she would only be paying $430,000, so you “owe her the difference”. I don’t agree. She bought the lot, and now still owns the lot. It is her lot. She was going to put it into the deal but didn’t. If the reasons for not doing the deal were different and you or her – for whatever reason – were not going to do the deal but the appraised value of the lot had gone UP by $55,000, would she (keeping the lot) be writing you a check for “your half”?

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Ask the Broker- Did I Invest in a Sub-Prime Mortgage?

Scott asks:

How can you tell if you have a sub-prime mortgage bond in a portfolio?

Scott, I’m taking a stab at this. I haven’t sold securities in 14 years. Mortgage-backed securities, in the early 90s, were mostly Ginnie Mae pass-through certificates or Agency-issued pass-throughs and collateralized mortgage obligations (CMOs). There were a few CMOs, issued by non-agency issuers, that may have contained a non-prime loan or two to “juice the yield”. Collateralized Debt Obligations, generally devoid of whole loan mortgages, may have been infiltrated these past few years.

How about this, Scott? I can’t say IF you have a sub prime loan in your portfolio. I can say that sub prime loans won’t be collateralizing GNMA, FNMA, or FHLMC issues. If you own an instrument comprised of primarily these issues, you should be in the clear.

Michael, your more current knowledge and experience might be more precise.

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Ask the Audience: How do you defend your own paycheck?

This came in as an Ask the Broker question:

Thanks for having this site.

We found the house we like and we made the offers and counter offers, finally getting to a place where we got stuck. The seller does not want to came down on her price and we cannot pay more. We are $20,000 apart.

What I would like is for all parties involved — the buyer, the seller and the two agents — to come to the table to make up the difference.

Have you heard of a situation like this?

Alas, I have.

I can be pretty free about using commission dollars to solve problems with transactions, but there are constraints. I will rebate every cent of an untoward commission or bonus, and I don’t hesitate to pay out of my own pocket to make problems go away.

But: My money is mine to do with as I choose.

I can address the problem posed by the question with a very simple analogy:

If your employer decided to buy a company car for his own use, would he be justified in asking you to kick in $1,000 toward the purchase price?

That clarifies that.

But take up the problem as a Realtor or lender: What would be the optimal response to an appeal like this?

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In Defense of Buyers’ Agents

This came into the comments section of this post yesterday, from Joshua Ferris:

What type of services do you expect a buyer’s agent to offer in order to create a “real value”?

Thank you, Joshua, for the set up! Timing couldn’t be better; there seems to be a confluence of events. Redfin has apparently duped a new round of investors (“Honest! It’s the last time I’ll ever need funding!” is the fourth great lie); Redfin is capitalizing on what seems to be an emerging anti-realtor trend; and I had more conversations with local realtors yesterday who are getting “I’ll only deal with the listing agent!” sign calls.

I wondered if there was anything that was helping drive it, so I just Googled “How to buy a house” and found this site:

“Real Estate Agent” Is Just Another Name For “Salesperson”
Don’t ever lose sight of that fact. Their only mission is to sell, sell, sell to YOU. Don’t ever let on that you are in a desperate situation, or that you need to sell a house fast to pay for emergency bills, or that you are in a desperate crunch to buy this house now, because you are being transferred into town this week. It’s simply none of their business and as far as they are concerned, you are not in a rush to buy a house.

Excellent. What good could possibly come from telling your agent how quickly you need to buy or sell? Buyers Warning
One of the biggest mistakes many home buyers make is assuming that their “buyers agent” is working for them. They could not be more wrong. Also, never let a real estate agent choose your attorney. You must choose your own attorney, not one with a cushy relationship to the salesperson who is trying to sell you a home.

Punctuation is oversold, and non sequiturs simply don’t deserve that negative reputation…

If you are buying a house instead of selling a house, you really don’t need a real estate agent.

When the Carnival of Praetorian Cranks Posing as Something They’re Not is launched, this guy — Jeff Ostroff — will win every week. He’s apparently an engineer by training, is an affiliate marketer who owns eight other ‘how to’ sites, makes his money here by driving clients to, couldn’t land a gig writing for a middle school yearbook, and certainly couldn’t effect a successful real estate transaction. A consummate fraud.

But he Googles number four.

So, Joshua, in answer to your question; for the benefit of Redfin idolaters, for anyone silly enough to buy into this, and in the off chance that this is helping drive buyers to assume buyers’ agents are worthless, let’s put some nonsense to rest.

The fundamentals:

  1. The free market rests on the capitalization of self-interest. Every business decision an agent makes takes into consideration his or her interest above all others.

    That, of course, is the point at which superficial thinking stops. I do what’s best for me, ergo whatever brings immediate gratification. But:

  2. Good agents know their greatest long term interest, by far, is in serving the interests of their clients. Not just because fiduciary responsibility is codified in the rules of agency, code of ethics and statute — and certainly not because of any altruistic bent — but because taking excellent care of customers means more customers.

With that in mind, here’s what to expect from a good buyers’ agent:

  • Knowledge. An agent is paid not just for what he does, but for what he knows. About the market, the neighborhood, potential local problems, financing, people, construction, the law.

    And it’s not just in the knowing, it’s knowing how to apply it.

  • Duties:
    • Education. Good agents don’t sell, they inform. With every buyer — first time or tenth time or investor — I sit down and go over the entire process, from pre-approval to close, outlining our respective roles so he or she knows what to expect before it happens. I subscribe to a map-based listing service that will email specific neighborhood listings to buyers each day, or narrowed listings within an hour of their going into the MLS; they’ll have a good idea of the market before we ever get in the car. I’ll give them any and all information they want, including commission splits. Educated buyers make their own best decisions.
    • Observation. Listening is nice, watching is better, both ideal. I get more information in ten minutes face to face than a year of emails and questionnaires. What people say they want and what they end up buying are often far apart. When we tour, instead of puffing the color of the carpet, I’ll follow, watch and listen. Usually by the end of the fifth house, always by the end of the tenth, I can be their eyes; like most agents, I often know it’s the right home before they do.
    • Negotiation and the writing of an acceptable, binding contract. Redfin’s claim to the contrary, good agents know what will work, what won’t work, and how to make what won’t work, work. Contingencies are balanced against price, motivations are weighed, the contract is written, then the agent will present the offer to the seller in person. If necessary, there can be lengthy negotiations through counter-offers. The result is not only better contract terms for the buyer — or the fact that there’s a contract at all if there are competing buyers — but, done right, there’s a sense of cooperation and a smoother transaction to close.
    • Hands on during escrow. Especially in this market, finessing to close is the biggest job an agent has. Setting up and interpreting the inspection, then negotiating terms; constant communication with the buyer, who can otherwise be an emotional wreck; constant communication with the mortgage broker, some of whose lenders don’t seem to understand the concept of “time is of the essence”. Problem solving, both small — I just spent a half hour on the phone trying to track down the account number of a line of credit my buyer had never used — and large — the lender who folds two days before closing. My bet is every agent here could write a book on the hurdles he or she has had to engage to get a buyer through a transaction intact.

Note: There is no financial quid pro quo in the hiring of a buyer’s agent. While the agent may save a buyer enough to pay his or her own commission, and while settling of home prices will be reflected once commissions are divorced, the buyer is still paying as for the purchase of any professional service: the saving of time, anxiety, and a de facto policy against future liability. Not everyone needs that service, but most do and the cost is well, well worth it.

Incidentally, with the sudden enormous increase in buyers demanding to work only with the listing agent, I’ve yet to hear of one who’s actually bought anything…


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