Are 1% Commissions Still Around?

Lately I have heard about a lot of people asking for 1% commissions.  They think the market is "hot" and the listing agent isn't doing any work to move the house.

With all of the new laws since the 2006 bust, agents work harder than ever.  What surprises me though is how sellers think the system works.

If you want to get the most for your property, the first thing to do is clean it up and stage it.  If I do this as your agent, that costs money.  Real money, and I don't get it back unless your house sells.

There are two basic methods for getting the highest price for your property.  Right now the method I see is slap a high price on it and hope you find a sucker or the market catches up.  When you see a home that has been on the market for 180 days, 360 days or even longer, you know what is going on as a buyer.  Buyers agents skip those homes.

The second model is to use the auction format.  Price it low or at $0, and then accept bids for a very short period.  Many auction houses charge as much as 10% and tack on another 10% buyers fee!  That is a 20% commission for an auction.  Why are they so expensive?  The marketing costs for running a proper auction are astronomical.  Hiring bands and catering are not unheard of.

The idea is to build a frenzy among qualified buyers.  You did only want offers from qualified buyers didn't you?  Another service the agent has to perform.

My approach is simple.  If you are willing to sell your house at a low enough price, I'll sell it for a low commission and either buy it myself or quickly find an investor to do it.  The below market price means less work for me, quicker sale for you, so I can get buy with a lower commission.  If you want at market pricing, and I need to spend money on four color flyers, and direct mail cards, and spend hours on the phone spreading the word about your house, I am going to ask for a market priced commission.

Finally if you are asking an above market price, then my commission will go up accordingly.  This is where people get is wrong and end up advertising for their agent.

Real Estate is a simple game of numbers.  If your house is priced on market, there will be many qualified buyers, so finding one or two isn't that hard.  If you price above market, there may only be a few qualified buyers willing to pay your price in the world.  Right now most buyers are still "deal shopping".  The economy isn't strong enough for them to just go out and buy at any price.

Finding that magic buyer who has the ability and desire to pay above market pricing takes a lot of work on the agents part.  That is why the auction houses charge the fees that they do, and prefer to only feature unique high end properties which are difficult to compare on a market basis.  The price is simply opinion and willingness of the buyer.

When you meet with an agent about listing your property for sale, make sure you understand where you home is priced on the market and make sure the agent has the resources and skills to sell your house, not just use your front yard as a billboard.

What you pay for commission is your choice.  Choose wisely.

Can You Get A Deal On A Short Sale Now?

Welcome to 2014, and a recovering Real Estate Market.   So what is an investor or buyer to do to make sure they get a deal?

When markets go up, speculators jump in making the markets go up faster.  Phoenix and Las Vegas are seeing a huge surge in volume of homes being sold, and yet they both still offer great deals if you do your homework.  And yes investors that have no business being in real estate, and speculators are buying homes.

My advice now is still buy and hold.  Leave the flipping to the people who do it for a living.

The key to success in the Real Estate game just like any other area you want to achieve success, is doing your homework.  It doesn't matter if you are buying your first home or buying your 15th investment property.  Doing your homework and buying right is where you make your money.

As a homebuyer looking for your own home, schools, location, commute and other factors are added to the equation.  As an investor, it is strictly a money question.  I know several investors who will buy property site unseen if they get the right numbers on paper.

Short sales are still happening although banks are more reluctant to approve them in recovering areas.  The banks are also taking a closer look at the sellers finances to make sure they really can't afford to be there.  If they can, you aren't getting the house.  If you need help with a short sale, there are a lot of resources out there, but the key is an aggressive agent who will make the banks nuts so they'll make a deal.

Short sales are where listing agents really make their money.  Otherwise it is the buyers agent that is doing the work to sell the house.  If you are selling a property and have it priced right in this market, the listing agent won't have a lot of work to do unless the property is over the FHA loan limits.

So how do you buy a short sale and get a deal?  The key here is to do your homework and know the property up front.  Ideally if you have an aggressive buyers agent, you won't have much work to do.  Most of the time when I talk with frustrated buyers, I find their agent telling them "It already has offers".  That is just a lazy agent.

Patience and Persistence Pay

I bought my own house after I lost out on the bidding war when the winner backed out the same day the bank approved the sale.  I watched the house for nearly a year while the other buyer tried to work with the bank and gave up.  I kept in contact with the listing agent and less than two hours after it was back as an active listing, he had my offer agreeing to all of the banks terms in his hands.  By the end of the day, the offer was accepted and the deal in escrow.

Short sales are funny, if they are an "approved short" that means that the bank has already agreed to the price.  Most of the time, these are at market value, and not a deal to an investor.  You can spot these because they are listed for more than about 14 days.

Aggressive Short Sale agents will price the house slightly low, and get a bidding war started.  Using the top 5 bids and solid market data, the sellers agent will approach the bank and explain why they should take the deal.  Sometimes it is very difficult to get to the person at the bank that has any authority.  When agents do this they can get a dozen or more bids on the very first day, and may not accept any other offers.

This is where having your own agent can hurt you.  Short sale agents might have to give up part of their commission in order to get the deal done.  If you walk in the door with your own agent, the selling agent may not be inclined to work hard on your offer for half the commission.  This isn't always ethical, but it is the reality.

If you are after any kind of standard sale, having your own agent is normally the smart way to go.  Some listing agents will push the limits to try and bring in their own buyer, most of the time this isn't the case.  If it is, you don't want to work with that agent anyway.

A good buyers agent will ask to present your offer to the seller directly, and explain to them how you came up with their price.  This face to face negotiation is invaluable in a standard sale, and pretty worthless in a Short or Foreclosure situation.

More than once at these face to face negotiations, I was able to learn something the sellers agent didn't know that I could use to get the deal done.  Money isn't the only motivator in the real estate game.  Kids changing schools, move date flexibility and other financial stresses are just some of the aspects of a deal that you can use to help the seller out.

If you don't get a short sale offer accepted the day it goes up, keep in touch with the listing agent.  Let them know that you are interested in the property, that you know they have other offers and remind them things change as you leave your card.  Use property watch alerts on Realtor.com or your favorite real estate site to see when the house closes or doesn't.  If the sale doesn't close in 45 days, remind the agent you are still interested, and then every 30 days after that until the house closes or pops back on the market.

For my personal investing and buying, I am still focused on shorts, and foreclosures.  I think this is still where the best deals are for right now.   I am starting to look more at standard sales for friends and clients.  The recent market changes have motivated several investors and second home owners to be very flexible when it comes to selling terms.

The difference in costs of being an agent/contractor and getting the work done in house to fix up a foreclosure and what my clients pay is closing the gap, making standard sales more cost effective at the end of the day.

If you are looking for a deal, watch your target area, and the minute a short sale pops up, jump on it.  If you miss out, keep a watchful eye out, you still might just get it.  The deals are out there, you just might need to work a bit harder to get them.

Who Are The Buyers Right Now?

Warren Buffet said he would like to buy thousands of single family homes.  Why?  Simply put they are a great investment deal right now.  Did he do it?  I don't know but I am sure Berkshire Hathaway didn't just jump into the real estate brokerage business this year for no reason.

In June the Berkshire name replaced Prudential in Florida and recently did so in Newport Beach, CA.

So Who Are The Buyers?

On the buyer side, investors appear to be the main buyers right now.  They are buying the houses that need work, but the prices are rising due to the competition among investors.  For instance, a recent waterfront in my area sold for $1.835 Million and was torn down, several over the sumer sold at or very close to that price only to be knocked down.  

A very nice home just around the corner, is listed at $2.4 Million and can't get even a low ball offer.  It has been on the market for over two years.  Another is listed for nearly $3 Million and as far as I know, also has no offers.

Can you really build a home and make money in that gap?  The answer is yes.  A really good investor can build for $400,000 making a total investment of $2.235, and sell for $2.3 and net $50,000 or so after interest and fees but that isn't what they are doing.  Most of them are only putting 10% of their money into the project so making $50,000 on $200,000 or even $400,000 in one year wouldn't be bad, and again that isn't what most that I talk to are doing.

What they are doing is building very slowly, taking advantage of lower labor and materials costs, locking in a good loan rate and sitting on the homes waiting for prices to go up.  Some have a sign on them, others don't.  One trick to look for as a seller is them dragging out the escrow for as long as possible to minimize their holding costs.

Maybe I am seeing more of this as an investor because I have trained myself to spot an empty house three blocks away.  I used to look for the dumpy empty homes, but now I am watching the newly remodeled empty homes.  This is how you get a micro glut.  When prices to recover to 2006 levels many of these homes will hit the market and stall pricing.  That isn't a bad thing, just something to be careful of when buying, and something you can use to your advantage if you don't want a fixer.

Are you ready to buy? 

Is A 4% Home Loan A Good Deal?

It is amazing how many people think rates will keep dropping.  Personally, I think the printing press economics of the Obama administration are going to catch up with stagflation like we saw in the late 70's and early 80's.  I think that Obama is handing his replacement a bigger economic mess than Carter handed Reagan. 

So is 4% a good deal?  If you are in investor, the question is can you make money with it?  Or can you sit on the property until you can?  If you are a home buyer the real question is, can you afford the payment?  If you can answer yes, then 4% is a good deal.

As a Real Estate investor and agent, anything below 4% is a smoking deal when it comes to financing real estate.  Why?  Inflation has been historically calculated at 3% per year.  Since the loan is fixed at 4%, as the home increases in value, the money is essentially free after just a couple of years.  On a 4% loan, nearly half of the payment is going directly to the principle.  You don't get much of a tax deduction but you get a great savings account in your house.  It might even be tax free or tax deferred.

I bought my home at 4% and refinanced at 3.25% a year later.  I did it because if rates went up to just 4.5% I couldn't get the loan for my house.  Remember the late 70's and early 80's?  If you don't, loan rates jumped from 8% to 14% and peaked right at 18%. 

The trick to surviving in the real estate game is to leave some wiggle room.  When money was really easy to borrow from 2004 to 2006 home prices went up based on greed, not economics.  People bought what they couldn't afford on the assumption they could use their home like an ATM and just keep taking money out to keep up with the bills.  Bad plan.

Think of it this way.  If you have a home with a $1000 monthly payment, over $400 is being used to pay down the loan on a 4% loan.  If you had the same loan at 8%, you would have a $1480 monthly payment that still only paid $400 of your loan that first month.  When prices go up or interest goes up, rents usually follow.  If you get transferred in just two years, and rates climb to 6%, the chances are good you can rent the house out for a nice profit.

At 4%, a $200,000 home only needs to rent for $600 a month to cover your real expenses.  Remember, the other $400 is buying you a house.  Think of it as a forced savings account.  If you can afford it, historically it is much better than a savings account.  If you rent it for $1000 per month meaning you have zero cash flow, you are still growing your equity at $400 per month plus the increase in the home value.  That is free wealth.  After five or ten years if you can rent it for $1200, then they are buying you a home and you are getting $200 a month for letting them do it.

So is 4% a good deal?  That is all up to you and your goals.

The Big SECRET Of Buying A Foreclosure

With all of the information on the internet about buying a foreclosure, you wouldn't think there are any secrets left would you?  Now I have to ask, If there aren't any secrets, how come everybody isn't buying foreclosed houses at half price and getting rich?  There must be a secret to buying foreclosures.

Easy access to information online and a subtle change in the market have made for an interesting real estate market.  Right now many people are  getting information about foreclosures online without understanding what it means.  They look at NOD, REO and Foreclosure listings on sites like RealtyTrac.com and many consider them the same thing.  The first part of the secret to buying a foreclosure is understanding what these things are.

Last year the market was very different.  Stocks were up so investors were staying in the stock market.  One day, Warren Buffet says he would like to own thousands of single family homes and then investors started throwing money at real estate again.

At least once a week I get a call or a lead from a website that starts the conversation with "I want to buy one of those million dollar foreclosures for four hundred thousand that I saw on somecrazyforeclosuresite.com", when can I get one, and oh by the way it needs to be stunning, with a three car garage and ocean views."  Do those "foreclosure deals" exist is what they should be asking.

Under the right conditions, I can help you get one of those houses if you are ready to make a wholesale buy.  Otherwise, you might pay eight hundred thousand for a home that someone else paid over a million for.  The conversation then goes to NOD's and Pre-Foreclosures.  Everyone wants a deal and they think the deals are everywhere and they are for everyone.

Unlike most other markets, real estate presents a different level of risk.  Especially when it comes to speculation.   I usually start  with  "So, do you invest in stocks?" most of the time the answer is "Why?".  I then ask "Do you borrow money for investing in stocks on margin?"  That is usually followed by a puzzled look or silence on the phone.

When you buy a foreclosure site unseen and ask the bank to invest money, that is exactly what you are doing.  Right now, banks aren't really happy doing that kind of loan.  That is what "hard money" is for.

So what does all of this mean to you, and what is the Secret?

I said the first part of the Secret is understanding the terms.

1. NOD - Notice of Default - This is not a foreclosure.  All the filing of an NOD means is the banks told the homeowner that they aren't paying their mortgage and the bank would like their money.  They are also filing a copy at the county recorders office so they can eventually maybe someday start the actual foreclosure process.

Most of the NOD's filed are for people who are trying to get a better deal from their bank.  It is a tactic used to negotiate a reduction on the loan.

At this point about 1 out of 80 homes that get an NOD end up on the market, as a short sale, and at least a dozen agents will call in the first two weeks to get the listing.

2. Pre-Foreclosure.  This is where the home is easier to read.  By this point it is either for sale as a short sale and the owners are making an effort to get out, or they are running a gamble to see if the bank will go all the way to foreclosure.  The grey starts getting a little more black and white.  Picking up a house in this area that isn't already listed is highly unlikely.  I would put the odds in the 1000:1 range that you could convince an owner and a bank to sell you the house at a great price during this phase.

3. Foreclosure Auction Date Set - Well not really.  Even when the "auction date" is set a deal can be made and the home won't make it to auction or it can be delayed.

4. Foreclosure Auction - This is the cash only auction on the courthouse steps, not the auction at auction.com or Williamsauction.com.  Investors and banks bid for the house on that day.

At the auction there are two outcomes.  1. The bank bids to keep it or 2. An investors bids for it.

In the first case, this is where every agent that has a relationship with the bank scrambles to get the listing.  If the house is in good shape, the banks will clean it up to FHA standards and try to sell it at a "retail" price.  The home is good enough to get a loan on.

If the house is a dump, the bank then assigns a "wholesale" price, which is what investors are looking for. The house won't qualify for a "standard" or "FHMA compliant" bank loan.  You need cash or very expensive "hard money".  Unless you have a lot of time on your hands and are a good contractor, it is tough to get in as a wholesale buyer.

This is where the confusion is.  A lot of people think that they should be able to get a "normal" home loan and buy a house "as-is" and fix it up.   The reality right now is that banks are not allowed to, nor do they want to accept this risk.  The bank doesn't want to get the dump back and go through all of this again.  It is expensive.

This is where information without understanding is a problem.  People spend dozens of hours scouring sites to get a "deal",  and then they call an agent because they don't understand that buying wholesale houses is a business, not a hobby.  If you are going to borrow "hard money" at very high interest rates, you have to be dead on your budget and flip the house quick or get a good tenant in there fast.

Bursting The Bubble.

So now the big answer.  There isn't a secret.  When you see an investor make $5,000, $50,000 or even $500,000 on a deal, they didn't just work that deal.  They likely worked hundreds or even thousands of deals and offers to make some good money.  The more they practice, the better they get.  Like Art Williams says, they "Do It" a lot.

The big risk is that you might not make money for a while.  Day trading, you might make money in an hour, with home flipping or investing in can take weeks or years.  When you leverage with other peoples money. The upside percentages can be phenomenal and the downside can be devastating.

That isn't to say you shouldn't buy Real Estate.  There are always great deals once you learn the business, and with interest rates under 4% I feel strongly that it is time to buy.  Last year when I posted that the market had bottomed in Orange County along the coast, I dove in head first and bought the most expensive house I could afford at a short sale. 

So how can you put this market to work for you?

If you have the patience, the best way to come close to a wholesale deal is to buy a short sale.  A short sale means that you are going to buy the house for less than the bank is owed for it.  The average in Orange County CA is just under 300 days right now from open to close on a short sale.  Nationally it was 308 days last month.  That is why you need patience.  As a general rule, the closer you are to the amount owed, the faster the sale happens.

The bottom line is if you need to move anytime soon and are using the banks money, my advice is find the best house you can afford and be happy.  If you have some time and would like to trade that time for equity while hoping the loan rates don't jump up, take a shot at a short.  Finally if you have cash and aren't a professional investor, buy wholesale very carefully with an agent who has been an investor themselves.

Happy Hunting.

Waterfront Auction Ends Today

The current real estate market can have some real interesting deals happen.  In the go-go days of 2004-2006, super luxury and unique homes were auctioned off quickly and easily.  Today many auctions don't even attract a buyer if the home is over $1MM.  Other times the banks are putting such a high reserve that nothing happens.  


I am not talking about the foreclosure auctions on the courthouse steps, rather I am talking about the big auction houses online and offline.  Last year I was the high bidder on several properties with bids under $50,000 and the banks wouldn't let me have them.  That was my first clue the market was turning, or at least the banks thought they could stop the dive by not letting homes go so cheap.  I don't know why they stopped taking any bid but they did, and it has been that way ever since for homes that are a FHA qualifying prices.


When you break $1 Million though, the rules are still all over the board.  Family greed and squabbles do funny things at estate auctions.  For probate, the courts are just telling the trustees to sell, and I am seeing some movement in those markets.  Even the short sales of homes over $800,000 have seen a decrease in the average closing times.  So where does that leave us today?


In Corona Del Mar California I have been watching a certain auction with a keen sense of interest.  Originally the property was listed at $14 Million, then over time lowered to $9.9 Million.  As an agent in the area $9.9 Million was a good starting point but it had been on the market so long the buyers just weren't interested for whatever reason.


The trustee decided to send it to Auction.  The property is one of the few original ocean front homes left in Southern California that hasn't been knocked down.  Walking the property I could clearly envision a new Tuscan style home featuring a subterranean garage.  I started emailing all of my clients who might consider such a project.  No interest at all.  One said "That isn't where the money is going."  Now I knew this would be interesting.  That came from a pretty savvy investor.

After really walking the property, and noticing all of the little details.  Details like the kitchen with the polished concrete floor still scarred by the tile squares, and the white washed wood vaulted ceiling in the master, and the 1960's style electrical light dimmers with clear switch plates, my wife looks at me and says "I could live here just like this."  With the opening price of $5.5 Million, it was clearly out of this weeks budget so I knew it wasn't going to happen at this auction.  I put a couple more feelers out to my friends who could write a check like this while I was admiring the view from the back yard.

My wife is always the romantic when it comes to homes and real estate.  I am generally more business.  Somehow I started to picture myself sitting in a wicker style chair writing my next book on the back lawn overlooking the Pacific.  I wrote my first book sitting on a balcony of my Texas McMansion overlooking a lagoon pool with a tropical garden as the backdrop.  How much cooler would it be to be sitting on a cliff above the Pacific writing that next book that is swirling around my head.

As I checked in this morning, the property was just approaching $6.0MM.  As an investor, that is still a bargain with a lot of room to make money.  As I write this there are just over 10 hours to go so I am interested to see if this is like poker and the two real bidders are waiting in the wings to make a snipe attempt at the end or if some lucky person is going to get a once in a lifetime buy on this land.

If I could just get that big advance for the next book or find a .05% interest only 5 year loan, I would buy it for $6.0MM and worry about it later, and that just isn't how I do business, there is something romantic about this property.

If you want to see it or bid on it in the next 10 hours, call me.