Let's Appraise The Real Estate Market

Just within the past two weeks I have had some mortgage lenders from different parts of the country tell me that they are not able to close loans or refinances because of low appraisals, even after miles of paperwork had been executed. Yet, none of them could explain it in detail.

Certainly, I’m not here to attack real estate appraisers. They have a job to do, and I don’t know the first thing about how to do the hard work they do. However, it looks like they (appraisers) are just as caught up in this mess of a real estate market as the realty agents, hopeful sellers, and frustrated buyers.

My displeasure with how the realty associations and many agents continue to toss out negative statistics by comparing home sales figures is well documented over the past two years. Many of the banks contributed to the fallout on the mortgage side. And so it goes.

Sure, the appraisers have to go buy comps and other local market information. But wait a minute. A home sold via foreclosure is, or maybe I make that “should be”, considered a special circumstance and not a determining factor.

Suppose there is a development of 10 homes which sold more than two years ago for an average of $300,000. Then suppose two of those homes went into foreclosure and sold for an average of $200,000 within the past six months. I would prefer to think that since the only two homes in that development which sold were due to foreclosure, that it would NOT mean that the other eight homes are no longer valued at $300,000. Yet, that’s what’s happening.

Yet, it’s not only the appraisers taking this path, although it appears that this is what is causing purchases and refinances to be blocked. The realty agents and associations are going along with this trend. And many potential buyers and sellers, along with mortgage lenders and those related to a transaction, are being, well, screwed, because of it.

Here is my solution. Stop the madness. Why can’t the National Assn. of Realtors create a separate category for “Non-foreclosed homes”?

Using the ten home development as an example, comps would show that the eight “Non-foreclosed homes” are valued at an average of $300,000. The fact that two homes sold for a lot less due to special circumstances should not impact the value of the others.

Even if the “special circumstance” properties were factored in for “weighted” statistics, the impact would not be as draining for all concerned. If the $300,000 homes development was only reduced to a value of $280,000 due to “special circumstances”, it would most likely open up for more loans than appraisers coming in closer to $200,000 (based on current comps) and the realty professionals going along with that.

Let me put this another way. Suppose another national electronics retailer is about to go under and has a “Going Out of Business” sale including laptops. Let’s say they have an inventory of 5,000 laptops which retail for $800 each. And, due to court order, they sell them all for $450 as a final sale.

Would that mean that every comparable laptop for sale via other retailers still in business would now be priced at $450 permanently? After all, 5,000 people bought that brand and model for $450!!

A foreclosure is a court order. The property owner(s) could not or did not pay their money, and lost the property, and it was sold in this manner.

How are these situations different?

Instead of coming up with more negative statistics to show why people aren’t buying and selling homes in most cities, it would be nice to have the people who shape the industry working on some serious and immediate solutions to this crisis. Before it's too late and thousands more hard working people lose their homes, too.

Who's to blame??

Here is an example of the much needed "positive spin" that should be used to generate some activity on specific homes for sale. A suburban Chicago agent managed to get a P.R. piece (or how it should be classified) in over the weekend giving the neighbors and upscale potential buyers a reason to take note of specific open houses. Even though this is not one of my clients, this is an example of what needs to be done on a larger scale:

http://www.dailyherald.com/story/?id=262942

But then, it's back to the more typical story. The "It's been a bad year" in the real estate market quote. The first words quoted from a realty association official:

http://www.theday.com/re.aspx?re=9594fe69-d6f3-477e-a534-9fc5d3164e2c

Yes - while hundreds of agents are paying dues to this association, its executive is quoted in the local paper about what is NOT selling and "bad year". In the marketing world, we refer to this as needing "damage control".

You can't blame the media. They do sometimes go too far in the positive way, such as the first story about the open houses and giveaways. My feeling is that they don't really go too far with the more common story where an industry spokesperson quotes about lower sales or a bad market. Nobody forced the person to give that quote, whether or not it was the first thing he or she says. It was the first quoted. Considering that a percentage of people only read the first couple of paragraphs vs. the entire article, that was a devastating story to agents in that area.

And, just maybe, you can't blame mortgage rates all of the time, either. I'm still not sure to what extent I agree with the point being made here, but this article does offer some interesting comparisons about home price trends in comparison with the mortgage rates.

http://seekingalpha.com/article/115338-the-mortgage-industry-housing-market-and-inflation?source=email

I would have to say it is a combination of both, depending upon the marketplace and the buyer's situation. An investor is going to look at the price of the property and the deal he/she/they can get at this time. A potential home buyer targeting a specific area and price range is likely to look closer at mortgage rates, realizing a drop of .75 could mean a couple hundred dollars less each month.

Whichever you think it is (between home prices and mortgage rates), the killer is often the collection of fees associated with the transaction, such as title fees and local taxes. These can add to the buyer's out-of-pocket at the worst possible time. Yet, there is little to no publicity about this nor any type of legislation or regulation proposed, to the best of my knowledge.

(And thanks to Ron H. for the tip on that association story.)

Getting The Dirt On Your Local Real Estate Market

All this concern about the environment and "going green" continues to increase in our daily lives, yet I am not seeing it reflected in the local real estate community. I'm not talking about throwing soda cans into the recycle bin at the real estate office. I'm talking about the history of both commercial and residential properties.

If you are considering a purchase, lease, or rental of new construction, shouldn't you know what used to be there?

Last week I happened to be driving through the neighborhood in Chicago that I grew up in. I noticed a recently built condo building that appeared to be almost if not completely full within a short period of time for this market. That's fine and dandy. Until my mind raced back about 20 years and I remembered the number of years that location was a gas station.

What I don't know is if or to what extent that information was disclosed to the buyers within this condo building. Did they know that they could (emphasis on "could") be living directly above pipes and coil which used to carry gasoline before buying? Maybe they did not, since a number of years have passed since that usage was taking place on a daily basis. Or maybe they did, but looked an excellent deal in the eye at the same time and chose to overlook the underground.

Perhaps 20 years is enough time for unused gasoline pipes to clear out or even be removed. This still brings up the point that with the change and growth in big cities and further reaching suburbs, we often don't know, don't recall, or aren't told what is and was underneath the home we now live in.

This doesn't always mean that potentially unhealthy chemicals lurk just below. I recall the time many years ago I was taken to look at some undeveloped land near Cape Coral FL. This was before that community had become much more than a few houses. I was being shown several residential lots that were available at the time, while I could see patches of standing water in several places. No way, Jose!

How could they expect someone to buy property when we don't know how much and how easily there could be standing water nearby. How solid is the ground in the surrounding area? I didn't hang around long enough to see if there was any wildlife on the property. However, years later when I returned to that area, it was a city with houses and stores everywhere.

You are probably asking - What does this have to do with real estate marketing?

My answer is - PLENTY.

Speaking as a consumer, the real estate agent should KNOW the answer about what is or was underneath when selling a property, whether commerical or residential. As it so happens, I happen to know what used to be in the new construction townhome I presently live in, but I'm happy to say that the builder told me anyway before making the purchase. And since then, I have made a positive personal recommendation of that builder. It's these "little things" that make a huge difference with me as a consumer.

Believe it or not, our government actually has a helpful resource available. You truly can get "the dirt" on a property online.

http://websoilsurvey.nrcs.usda.gov/app/

That is for the USDA Natural Resource Conservation Service's Web Soil Survey.

This is a big part of why I constantly tell consumers (friends, family, acquaintances) to do as much research as you can before making a real estate or big ticket purchase. The realty agent (or whomever) doesn't know how much or how little you know. You should ask these questions anyway, even if you know the answer. I'm disappointed to report that 2 of the first 3 realty agents I asked did NOT know the above site exists.

When you are considering a realty agent and/or a mortgage lender, test their knowledge before proceeding.

Since this blog is just as much for those realty agents and mortgage lenders within the industry, the message should be clear. A property you are representing or assisting with is a big ticket item for the buyer and seller. You can't treat it like another brick in the wall.

My best advice is to treat a listing appointment or loan application like a job interview. In addition to making sure the needed paperwork is on hand and accurate, you should use every opportunity to reinforce that you are the person to handle this transaction. Even AFTER the papers are signed.

I don't know the person who wrote this about job interviews, and will mention that the comments which follow present just as many interesting views, but this will hopefully bring out the importance of my "job interview" theory:

http://glipress.blogspot.com/2008/12/5-interview-questions-that-mean-youre.html

During the course of my personally contacting more than 1,000 lenders and realty agents every month about a variety of advertising and marketing concepts, I have several of them each day tell me that "I work by referral".

If only it were as simple as they make it seem. There are a number of times I ask a realty agent or lender a specific question about a property or a loan, and the answer I get is not the correct one. He/she figures I won't know the difference. They probably get away with sounding like an expert most of the time because consumers don't do their research. My point is that a BAD referral is going to cost them additional business.

Yet, they didn't need to spend more for advertising or marketing, as much as that would help. They did need to have done their homework in order to clinch the sale.

The marketing of a commerical investment property in today's market

My clients don't always like to hear it, even if they appreciate it. More than ever in today's economy, it takes an extra and a different type of effort to sell a high end or investment property, whether residential or commercial. The days of "here it is, come and buy it" are long gone.

One of the networking sites I frequent had a post from a realty agent I do not know and had never contacted before to the best of my knowledge. He basically announced that the property is for sale and linked to its web site as well as to another version of the listing on a commercial property listing service.

This is for a waterfront restaurant and property in Rhode Island, with the web site he gave being WaterfireDining.com.

My curiousity got the best of me. In better times (as in a few years ago) I did extensive market research to prepare brochures and presentations on a waterfront restaurant in Indiana, and a family owned restaurant in Wisconsin, among others. And this Rhode Island property is priced higher than those I have worked on. I decided to visit the site as if I were a potential investor.

I don't often quote myself in an article, but in this case, it gets my point across. This agent asked for comments, so after visiting the links he gave, here is what I replied with:



"Don - the site and the listing impressed me but didn't "sell" me on why it would be a good investment. (OK - I'm not an investor and don't play one on TV, but I do point these things out to realty agents who are already my marketing clients.) So far I want to eat there rather than buy the place, and that isn't your intention. There is nothing to show a potential buyer why he/she/they should spend over $2,000,000 on this property. Why is it a "former" restaurant? That would potentially scare me off before I would contact you about it. I could go away thinking it has been closed for years and you are still another agent trying to unload an overblown listing. Or, I could come away thinking that it just closed due to insufficient financing in a challenging economic time and that someone could get a good deal if they open it again by the end of the year. And if I had over $2,000,000 for an investment, I'll think the worst of an opportunity. And all the photos in the world don't answer that important question for me. Also, it is located near a major college campus. But is it a place that students go and hang out? Unless I know it is, the proximity to campus doesn't necessarily sell me on this as a good investment. If the students do not frequent the place, the location could be more of a negative than a positive. But I don't know either way. This looks to be another instance where "reasons and benefits" should come before the pictures, bells, and whistles. The site and the listing do not tell me why I should invest in the property."

In other words, I only got part of the overall picture. That part I can understand, but my entire point is that I got the "wrong" part.

This, like thousands of others, is an investment property. Potential buyers are not going to compare it to other restaurants or buildings. They are going to compare it with other potential investments. The potential buyer for this property may not care if it is waterfront, in a college town, or in the middle of a swamp near New Orelans. That potential buyer wants to know, first and foremost, how he/she/they can serve their purpose by purchasing the property.

That purpose could be specific to wanting to own a restaurant, expanding a college town or coastal restaurant concept, starting a family run business, a plan to establish and then re-sell in five years for a hefty profit, or as a tax shelter to pour some money into "improvements" for.

Yet, the majority of the points raised in the previous paragraph were not addressed. I'm sure that those of you who are realty agents are saying to yourself "Of course not, that's why you need to contact me!".

And that's where I come back with my explanation that times have changed. If I am considering an investment of more than $2 million, I am just as likely to say "next!" and look for another possibility as I am to contact the agent and have to give out information before I can get answers to what really are qualifying questions.

If I really was a potential investor in this property, a visual presentation (and I consider a dedicated web site to be one of them) needs to start me up with more important information.

The presentation needs to answer the questions that an investor or investment group of this magnitude needs answered. Like the questions I raised in my response to Don the agent.

Then, if I am still interested, I'm sure I'd be impressed by the pictures.

Now, I'm sure that Don and many other agents I talk to want to tell me that this disappoints them because by doing it the way I suggest they will not be contacted by as many potential buyers.

I disagree. This is not just another condo in a 20 year old development. This is a serious investment property. As an investor of this magnitude, I would be well versed enough to take note that a realty agent has started off by targeting the most important factors. Even if he/she did not target my specific needs, I might still be tempted to contact him or her. Why? Because it would come across that this person understands the marketplace and likely could address my specific need. Or know enough to refer me to someone who does.

Sell the sizzle, and not the steak. At this level of investment needed, market the property and not the agent.

Let me assure you that I am not here to attack agent Don or the property one bit. This is what I would tell him if he were my client. But I will also tell you that in the first 6 days of Don's post about this property, mine remains the only response, and I haven't heard from Don about it either. And the property is still for sale.