Monthly Archives: April 2010

All We Have to Fear…Is the Wrong Kind of Fear

I haven’t been a very positive role model lately, have I?  More of a brooding cynic than a buoyant cheerleader for the market.  Maybe I’m just contrarian by nature. Or maybe the medication I’m taking to curb my Oppositional Defiance Disorder (ODD) has stopped working.  Or maybe I’m a hopeless misanthrope and will never feel entirely comfortable joining the rest of the herd on anything.  Whatever the lame excuse…mea culpa…I’m sorry.

I promise to get more in touch with my irrational exuberance. Stoke my own upbeat, unbridled belief in a brighter future. I’m going fluff my aura and get with the program before they revoke my license, strip my Realtor lapel pin, confiscate all my sales awards and throw me off the real estate bandwagon for good. I pledge to hold weekly pep rallies and start pumping up the volume on all that positive real estate news out there –  even if I have to manufacture some  of it myself.

Is it shameless boosterism to inflate my own optimism for the greater good?  Am I guilty of selling smoke and mirrors if my underlying motives are pure? So what if I happen to commit a few small sins of omission or manipulate a few aggregate statistics while trying to foist a little blue sky on people who desperately need it?  There’s a lot at stake. Like a whole slew of lost shares in the American Dream that are up for grabs. And the fragile recovery of an economy that could use an infusion of down home spending.

So, here we go folks! Step right up. I’m here to tell you that today is your lucky day!  But then, all you brilliant investors, smart-money savants and cutting-edge entrepreneurs already knew that, didn’t you?  How could real estate get any better than it is right here, right now?

How perfect is this storm?  Let me count the ways:  Low prices. (Remember when there wasn’t a house out there livable under $700k?)   Low interest rates. (Close to historic, hovering just above 5%.)  Lot’s of juicy distress sales to sink your teeth and your claws into.(Somewhere around 70% of properties in escrow are short sales or REOs.)   And…even if you missed the Federal Tax Credit for first time buyers, the debt-strapped State of California has generously stepped up to offer its own set of steak knives with almost every purchase.

How cool is that? Getting paid to buy something? Better than green stamps or bonus miles! Shoppers, if there ever was a blue light special happening in middle of a housing market, this is it!  Heed the call. Stampede your way towards the home improvement aisles of Santa Cruz County before all the best deals are gone!  Stragglers are going to kick themselves, if they miss this golden opportunity.

Bear with me. I’m a little dense but I think I’ve got this shameless boosterism thing figured out.  We just have to find a way to recycle our negative fears into more positive and productive fears.   Perhaps we could issue a series of “fear of default swaps” and encourage people to bet against the worst case scenarios that they seem to have such a huge appetite for.  Instead of letting them buy into the fear of losing everything, in a way that keeps them paralyzed on the sidelines, we can hedge that position with a much healthier fear  –  one that makes people feel absolutely petrified they are going to miss out on the gobs of money there is to be made if they get up off their asses and start moving again.

It’s simple: We just need to appeal to the greedier side of people’s fear.  We need to provide more of the hair of the dog that bit them in the first place – before the bubble burst.  I feel a Gordon Gekko moment coming on. Ready? …”Greed is Good!”  Now that felt scary-good didn’t it?

So here’s one thing we can do.  Take some of those Buyers worrying themselves sick that prices will fall further if they actually buy something and convince them that the market has already hit bottom and that prices are going up fast. Their fear of buying will be transformed into the fear of not getting a house fast enough.

We can quote the right statistics in just the right way. “Sales in March were up 16% from March of last year. This was the 19th consecutive month that the demand for sales increased from the same month in the previous year!” Who cares what that actually means? Who cares how low the numbers actually were 19 months ago? The market must be booming. It’s good news. And it’s time to buy!

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ARE WE BUYING INTO A BUYER’S MARKET?

Where were we?  Oh yeah. We were talking about the phenomenon of multiple offers during the heyday of market madness. A million years ago.  Pre-apocalypse. Way back in 2004-2005.

It was a Seller’s Market.  Every time you ventured across the threshold of a new listing you had a pre-programmed list of questions already rattling around in your head:  How many offers do you have? When are you accepting offers till? Are you going to issue multiple counter offers? What (besides the highest price that can be squeezed out of us wanna-be’s) is the Seller  looking for? Incredibly short contingencies?  A specific escrow officer? An absurdly long rent-back period?  A non-refundable deposit in the form of my first-born child?

The underlying truth about all these questions  was this – there was simply no question about who was in charge . Sellers said jump. Buyers rolled over and responded with a resounding refrain of: “How high?”   They didn’t like it.  But it was easy to justify. Put up with all this bullying of the buyer business and sooner or later you get to be a seller too.  Then you’ll be in the driver’s seat of the bus everyone else is chasing. Payback time gets paid forward.

So here we are on the other side of the inside-out Real Estate Universe. It’s a Buyer’s Market – or so everyone is telling us.  And in a Buyer’s Market, all the opposite things are supposed to be true.  It’s not how many offers do you have? It’s have you had any offers at all?  Even a low-ball one, way back when you first went on the market, four months ago and now feel stupid for not taking it? It’s how motivated are you? It’s how much stress is there, getting swept under that freshly vacuumed rug or stuffed behind that neatly staged couch or hidden in the recesses of that way-too organized closet?  It’s when are you going to lower the price again dummy? And it’s are you ready for all the extra grinding I’m going to do even after you end up accepting my insulting offer over all your own worst gut-wrenching objections?

And yes, in an ubiquitous Buyer’s Market, it is some of the above, some of the time. But to the growing surprise of many, it isn’t all of the above all of the time.

In fact we are seeing things that we aren’t supposed to be seeing in a Buyer’s Market.  A series of odd apparitions. A surprising number of multiple offer situations cropping up all over the landscape. Not on every house. Not in every neighborhood. Not across the monopoly board in every single price range. But they are there in numbers far greater than one would have expected, given the hope and the hype that Buyers in a Buyer’s Market can’t help but buy into.

Strangeness in a Strange Land.  Multiple offers don’t belong here. Buyers aren’t supposed to be competing with other Buyers. Not now. Buyers are supposed to be sitting back. Taking it easy. Biding their time.  Waiting patiently for it all to get sublimely worse. They shouldn’t be in a hurry to get anywhere. They should be drinking lemonade.  Lounging in the lay-z-boy.  Indulging in a some righteous channel surfing along with a bit of slow and disinterested MLS surfing. While all those anxious Sellers grow more and more desperate by the day and the hour and the minute. Buyers just aren’t supposed to be duking it  out with other Buyers for the privilege of purchasing a property in a Buyer’s Market!

So what gives? Why is this happening? Who or what is rewriting the rules of how this is supposed to work?  Why isn’t this the golden age of the real, first-time Buyer, like it was in 1994 when over half of the sales involved Buyers who had never owned a home before. Those fortunate Buyers who watched in awe as a wonderful window of opportunity opened up for them that they thought had been closed forever by the peak of the market in the late 1980’s.

Why isn’t this a better market for move-up Buyers? It should be. When prices are going down, there should be better demand for lower priced homes, while higher priced homes, larger and better, get disproportionately softer and more attractive in price.  Move-up Buyers should be gaining on the changing market right now, specially when interest rates have remained so artificially low.

And yet. And yet. These aren’t the Buyers that are being welcomed with open arms into this Buyer’s Market. At least not enough of them.  Next week, let’s examine some of the shadowy substance lurking behind the scenes.   Is this what happens when banks have too much control over both sides of the marketplace?  A stranglehold on both supply and demand?

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MULTIPLE OFFER PERSONALITIES

Hmmm.  How odd.  Buyers competing with other buyers?  In what’s supposed to be a no holds barred Buyer’s Market?  You know, the kind of market where buyers call all the shots. And have their pick of the listing litter whenever they deign to bestow a little largesse on those woeful  sellers, all addressed up, waiting to dance.

And yet…,.we’re seeing multiple offers flying right and left, at least in some parts of  this peculiar market. What’s that all about? It flies in the face of everything we thought we knew about how a Buyer’s Market is supposed to act. But then, these are interesting times, aren’t they? As the oft-quoted Chinese curse says: “May you live (and buy) in interesting times.”

Before we get too far into the mysterious multiple personalities that come part and parcel with multiple offers in a Buyers’ Market, let’s spend a column strolling down memory lane.  Let’s harken back to those thrilling days of yesteryear – when it was a Seller’s Market and there was nary a care in the world. Money grew on trees and competing buyers were the staple that everyone else was feasting on.

If you were a listing agent back in  1988-1989, 1999-2000 or 2004-2005,  you knew, unquestioningly, with every fiber of your real estate body, that even if your first escrow fell out, due to fate or bad luck or even a buyer’s bad behavior,  there would always be another one waiting in the wings.

For every offer, there were 4 or 5 or 20 others right behind it. Buyers tripping over buyers to get into back-up position.   Every listing was on the gold standard. A veritable stash of krugerrands buried in the back yard. You didn’t worry about counting your commission before you had it because every listing – good, bad or ugly –  sold.  The key to success was to get the listing in the first place They were all done deals.

Here’s to  a rapidly appreciating market! It cures all ills. Glosses over all imperfections. Makes every boo boo feel better.  Nothing can go wrong…until of course, everything goes wrong.

Working with buyers in a Seller’s Market? That was another story. You put your time in. Often endless hours. Showing countless numbers of properties. Rushing to get to them quickly when they first hit the market. Beating the rest of the hungry hordes flocking to the blue light special. Writing offers on properties your client didn’t stand a snowball’s chance of getting – mostly because they just weren’t ready to step up and pay what the market insisted they pay and in the end… made them pay.

Sometimes it took 3 or 4 failed multiple offer situations for a buyer to finally get it.  For the light bulb to go on. They really couldn’t negotiate. The market wasn’t going to let them. This wasn’t Burger King and they couldn’t just walk in off the street and expect to have it their way a la carte. If they wanted to buy something, anything, the capitulation had to come from the buyer’s side of the coin (lots of coin).

The challenge for every buyer was in his own head. The true negotiation was with himself. How much could he ultimately convince himself to pay for a place? How much could he trick himself into taking on? Whatever he thought his limit was, the highest price he could possibly afford …it always took more. And more. And then … just a little more.

It was The Big Squeeze. Not only did buyers routinely start with more than full price and bid-up from there, they were also pressed for time. They careened crazily through escrow with incredibly short contingency periods. After working so hard to get into contract, they were afraid of what might happen if they didn’t hit every single mark, in perfect sync, along the way.  Inevitably, there was always something unexpected that came up.  A bump in the road or in the interest rates at the last minute. An extra closing cost popping up out of nowhere.   An inspection issue that no one really anticipated. Ca-ching. The adding machine just kept adding it up and piling it on.

Buyers had to talk themselves into accepting it. Dealing with it. Working around it. Putting up with it until it could all be fixed down the line, with a tiny piece of that pot of gold that was going to be theirs, waiting at the end of the rainbow.  It wasn’t that buyer’s remorse didn’t happen back then. It was just that it was so much easier to swallow.  The gestalt of the times was cramming it down every one’s throat. The whole object was to buy something. To get into the market at any and all cost.  Because it was only by getting into the market that you got a chance to be a seller too.

So next week, let’s explore how utterly strange this phenomenon of multiple offers can get when it happens right in the heart of a market teeming with buyer’s remorse. Who wins? Who loses? Who capitulates now?

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Bigger and Better and More April Fools

* (Read to the end and receive your free gift for playing the game)

It’s no secret. We’re living it. Real estate can fool ya’ in a New York minute. Some of the time. Most of the time. All of the time. Just when you think there’s a fastball coming right down the middle of the plate, the invisible hand of the marketplace alters it’s grip on the seams and throws you one of those really nasty curveballs instead. Even when your eyes are focused clearly on the pitch, you can still miss by a mile on occasion.
It’s April Fools week folks. Real estate is buzzing with a crazy kind of trickster energy that has us doubting established truths, looking over our shoulders, questioning everything getting tossed in our direction. Since baseball’s opening day is also coming up, you are all invited to step into the batter’s box while I step up on the pitcher’s mound. I’m going to check the dream catcher’s signs, take my wind up and deliver a few patented knuckleballs your way – in true trickster fashion.
Decide whether each of the following pitches is true or false and then log onto my blog (real-estate-of-mind.com) to see what your batting average is. Everyone will be rewarded with a take home souvenir just for playing the game.
•    To encourage consumer confidence, the Obama Administration considered calling this spring’s time change – Daylight Spending Time. False

•    A Homeowner has officially been redefined to mean someone with more than 51% equity in their home. False

•    A Million Mortgage March is being planned for mid May. Throngs of angry mortgagees are expected to descend on Washington to present the White House and both Houses of Congress with ceremonial Notices of Default. False

•    More than 35% of the homes in both inland and coastal California are now considered underwater. True

•    Recordings of Rush Limbaugh have been used to kill termites in heavily infested progressive regions of the Country. True and False

•    A disgruntled winner of a $2 million dollar Dream House Raffle sued a Bay Area non-profit recently after an independent appraisal proved the home was only worth $1.2 million. False

•    Enterprising Agents are buying midget-sized statues of the patron saint of homes, St. Joseph, and burying them upside down outside of their short sale listings in the belief that it will make those oh so tedious bank processes move a lot faster. True and False

•    The median income in Santa Cruz County only allows a buyer to purchase a home for $350,000 assuming they could actually scrounge up a 20% down payment and that they could actually  survive the rigors of a full doc loan qualifying process. True

•    Using credit scores to determine a borrower’s loan qualifications has been declared unconstitutional and a discriminatory lending practice aimed at redlining people who don’t pay their bills. False

•    The EPA has declared the Orlando and Las Vegas real estate markets Superfund Hazard Sites in a bold new move to jumpstart remediation efforts to clean up toxic assets all across America. False

•    Disney’s California Adventure Park plans to open a new attraction featuring an underwater McMansion Ride. Thrill seekers will attempt to get out of homes turned upside down by an unexpected rogue tsunami. It is loosely based on the hit 70’s disaster movie – The Poseidon Adventure.  False

•    Locally, more notices of default have been issued in the first three months of 2010 than there have been sales. True

•    Nobel Prize winning Economists have declared it impossible for multiple offers with buyers competing against other buyers to exist in a buyers’ market. True and False

•    The housing market is being called “the Vietnam War of the American economy” and a new syndrome called PTDSD (Post Traumatic Distress Sale Disorder) has been identified in a high percentage of former foreclosure and short sale participants. True and False

•    Unemployed actors in Southern California are being hired to occupy vacant homes and coached to go through the motions of being “real” Sellers to help “psychologically stage” and market Bank-Owned listings. True

•    A host of new online real estate courses are being offered for enterprising Agents anxious to earn flashy new professional designations. In addition to CDPE ( Certified Distressed Property Expert), new webinars are focusing on GGC (Greed and Grief Counselor) and CYA (Liability Aversion Specialist) accreditation. True and False
Your Reward for Taking the April Fools Test: A free ride on the real estate market roller coaster…have fun and hang on! CLICK HERE

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