Wednesday, May 19, 2010

Morgage delinquencies - are they a red herring or real trouble?

The Mortgage Bankers Association noted today that the number of people who missed a payment increased to records levels indicating a possible future rise in foreclosures. These are the same folks who told us a couple of months ago that the threat of foreclosures was essentially gone.

So, is it all negative hype to sell papers or do we have a real problem?

I say it's hype! Why? We also heard today that consumer prices dipped for the first time in a year and that wholesale prices dropped .1% in April. With consumer prices dropping it seems to me that people will have more money in their pockets. They'll either save it or use it to pay the mortgage.

Either way, money is incredibly cheap right now and 20% of foreclosures are being snapped up by investors. If inventory is being bought up left and right, how can we have a problem.

These "projections" of possible outcomes on the overall economy are nothing more than a red herring to distract regular homebuyers and keep the opportunities open for investors. As home inventory has been bought up in the local area, prices have started to rise. If consumers are kept out, investors will buy and prices will be kept flat - in the investors best interest.

That's my theory, I'm sticking with it. We need less media hype and more focus on financial reforms to help keep solid consumer buyers in the market.

Tuesday, May 18, 2010

Leave your wallet at the door: out-of-area agents will cost you

There's a trend afoot in California: a move toward a single MLS system through which an agent from anywhere in the state can market a property anywhere else. As a homeowner, should you choose this option in the future, count on getting less of what you expect from a full-service Realtor.

Out-of-area agent = less market knowledge, less marketing, less negotiating, and less money.

No matter how much the online world has connected us, there is no way an agent from 30, 50, 100, 200 or more miles away can possibly no the subtle aspects of a local market. Sure, they can look at the comps and make a decent determination on price. However, they don't have the local connections or market knowledge to know what price will trigger multiple offers. How do they know where to advertise? Can they distribute flyers to local brokerage managers to give to agents? Can they present at the local broker tour? All those questions will get a "no" from an out-of-area agent.

In Los Altos and other communities, the best agents are the local agents. They know the market because they work here. I'd say that holds true for most other communities.

When evaluating a agent to sell your home, look at how many homes they've sold in the area, what they know, and who they know. Local strength is built on relationships in the neighborhoods and among the other local agents. That will translate into a better marketing plan and more money in your pocket.

For home buying, it's different. It's hard to refute the data on local sales no matter how far away they are. Most agents can run a market analysis on any home. Even then, a 1/4 mile can make a big difference. It's possible to see more agents from out of the area representing buyers and being marginally effective. However, I don't see them being effective on the sales side.

What do you think?

Friday, May 14, 2010

Low-balling can get you black-balled

The decline in property prices in the last few years has given rise to the unpopular practice of low-balling - offering a price way below the list price in hopes the seller will just take it. When it works, it's great for the buyer but painful for the seller. Unfortunately, low-ball offers are often seen as offensive to sellers and the agents who write them can end up in the dog house.

I had two recent listings that received low-ball offers, as much as 40% off the list price. The homes were both in excellent condition, priced well, and marketed appropriately. The mindset from the buyers and the agents seems to be "let's see if we can get a steal". For the agents, I've politely told them to do better research on values and "get real". If you're a buyer's agent coming in with these ridiculous offers, be careful, you may get a bad reputation in the local market. If that happens, you're unlikely to ever get acceptance.

I understand these agents are willing to write these offers because prices dropped in past years. However, now prices are moving up - at least in Silicon Valley. Everything is moving up, especially the low-end. Multiple offers are common, not rare. Overbids are back in force. Inventory in some areas is so low that 10, 20, 30, or more buyers will go after a home.

If a buyer low-balls a home and the seller declines the offer, that buyer has little chance of coming back and winning. Why? The seller has lost all faith in the buyer. They know that buyer will nit-pick every disclosure to squeeze the seller a little more. Seller's don't want that. My advice for buyers is, be realistic and don't go for the "steal".

For the buyers I represent, I always tell them to be realistic. Don't go too low and don't go too high. We'll work on getting a reasonable deal where everyone wins. When that happens, the clients and agents walk away from the transaction feeling good.

Tuesday, May 11, 2010

How soon is soon when "coming soon"?

Without getting tongue-tied, the question is how early is is reasonable to put up a coming soon sign. This is a big issue in California and in my local area as well. The controversy comes from agents who put signs up weeks or months in advance, thus disrupting the flow of the market.

In discussions with the managers of major brokerages in Los Altos and Mountain View, the consensus is that signs should be up no more than 2 weeks in advance. I can live with that. However, we do see agents who put signs up a month or more in advance. While the client and listing agent for that property may think it's great to build interest in their home, it can hold up buyers of other properties.

Often times the intent is to build a fervor for the upcoming property. However, it keeps buyers from bidding on nearby properties. This can be bad for several reasons including lack of comps and lower sales prices. The lack of comps is an issue for appraisers which might impact closing the deal.

The potential for lower sales prices, in my opinion, comes from having buyers be able to choose which property to go after. With more inventory on the market, buyers are in control. However, if homes become "pending sale" or "sold" then there is less inventory, more competition for buyers, and prices trend up.

So, keep the coming soon signs to within a couple of weeks of coming on the market and be reasonable when bringing on competing properties. A fair free market will benefit buyers, sellers, and agents in the long run.

Monday, May 3, 2010

Curmudgeon landlords and their draconian "no pets" policy

It seems I'm spending a bit too much time lately taking issue with rather unpleasant...issues. Today I put before you the idea that owners of condos, townhomes, and single-family residences available for rent have mostly, as a group, decided that pets of any kinds are unwelcome. In particular, most owners of single-family homes declare "no pets" in postings on Craigslist, Padmapper, and other online resources.

While I understand that there is a desire to keep a home in top condition based on a possible future sale, it seems to be downright uncivilized to discriminate against pet owners. Have these people ever heard of a pet deposit? If $200 is too little to cover the cost of replacing carpet or fixing screen doors, then increase the deposit amount.

According to the Humane Society, 39% of households own at least one dog and 36% of household own at least one cat. They don't address households with combinations so let's assume that at least 39% of the U.S. has a pet. That means millions of people have a nearly impossible time renting a single family home!

Keeping it local, take a look at listings for rental homes in Los Altos, Los Altos Hills, and Mountain View. You'll find that of the available single-family home listings most indicate that either pets are not OK or are "negotiable". Negotiable means that if given the alternative, the owner will rent to someone with no pets. Looking in Cupertino, Sunnyvale, and other nearby communities the number of homes with a "no pets" policy increases substantially.

So, do we need a law on the books to ban pet discrimination? Have a few bad tenants spoiled it for everyone else? Why will almost all apartments take cats and yet so few single-family homes will?

What are your thoughts?