When I moved to Chula Vista in July of 2007, we were very close to buying a home. So much in fact that we viewed at least 20 homes, after some discussion we decided that we would not buy a home here because we were not sure how long we would be in San Diego. Plus, I wasn’t sure how long I would be with Redfin considering my abrupt move to So Cal. Well here I am, 14 months later and I am sure glad that I didn’t buy. So many things have occurred, the Southern California Wildfires, the Mortgage Crisis, rising gas prices, and just an overall lull in the economy. After 202 real estate transactions you think you have seen it all, but even today I am still learning new ways to skin that elusive cat my aunt would call real estate.

Today, I re-visited a home that I sold last week. My client had purchased this REO from IndyMac. According to the county’s tax records this is the transaction history of the home:

June of 2003 - $381,000

September of 2005 - $584,000

June of 2008 - $287,000

September of 2008 - $340,000

Negotiating with a REO listing agent has become a specialty of mine, I have found that there are similarities amongst what they are willing to accept. REO properties in the 300-500k price points are always listed below market, where the banks are hoping that the property would stir enough interest in the buyer community to drive the sales price higher. This tactic has shown to be very effective. In the case of this property, it was listed at $329,600 and hit the market on July 27, 2008. I showed the property on the 8^th of August, had the property in contract on the 14^th. It was a multiple bid situation - two other offers were involved in the process. Every offer is different but here price and strength of buyer were my tools to winning this one. My client had over 20% in the bank and we had been looking at properties for more than a month. She was pre-approved with Bank of America, which I thought we could use to our advantage. I made it very clear to the listing agent that we had done our homework. Specifically, we knew that the property was listed below market, and were very familiar with all the comps in the locale.  A home across the street for less square footage sold for $370,000 only about a month prior. It was an REO and was owned by Downey Savings. Our property had some nice upgrades and was much larger, so I knew that if we did not go above the list price then my client would probably lose out.

I always make it a habit to know who I am dealing with; I verify how long the agent has had their license. What type of license they have? I also Google them and check them up on LinkedIn. If I can gather any information at all, I will always put my findings into my discussion with them.  People tend not to not think straight if you put them on tilt. I found out that he had in office in La Jolla, been in business about 9 years, and was a salesperson. Just from that, I am able to gauge my approach. Based on those facts, I can determine that he will want a quick escrow, he probably does not do a great deal of work in the property area so he may let go of the property to someone he has confidence in working with. He also may be willing to give up the price out of convenience. I was right on all fronts.

REOs are always trying to get their money fast. My thinking is if they can get this off their book faster, then they move on to the next property.

So we went 11k above list price, 21 day close, 12 day contingencies. I also negotiated for 2k in repairs and a home warranty. There were some problems with this home, just like any previously foreclosed homes. Broken windows, a leftover portable spa and no appliances were all evidence to substantiate a credit. I have found that REOs are more willing to credit money than deal with any replacements or repairs. Again I was right. I was pretty happy with that deal. More importantly, my client was even more impressed with the style and efficiency of the process. 

Overall she had seen about 36 or more homes so I think she had a good feel of where the market was. We had written 4 offers, all were short sales except for this one. Three months later all of those properties are still on the market. My client was frustrated and was starting to think that she would not be able to find a home in today’s market. I also learned a little trick about motivation, buyers who are frustrated with short sales often become very interested in REOs. Dare I say it, but REOs almost have a certain sex appeal when compared to their non-performing short sale competition.. Buyers find that although the market is filled with short sale opportunities, REOs properties are the ones that are actually selling. Therefore, creating two types of buyers for 2008:

1. Buyers that can wait for a short sale and are not necessarily looking to move right away.
2. Buyers that need to move in finite amount of time.

Converting 1s into 2s is the name of this game. If you can learn to identify what will motivate buyers to become 2s rather than 1s then there is a likelier chance that you will consummate a deal.

So will I buy a place any time soon, well I am not sure. We still have our place in Burlingame and a few property investments here and there. I guess only time will tell, after all time is on my side. The market will recover it is just a question of when.

Christian our District Director was proud to say that our district had a 92% increase in closings when compared to May of last year.  –  Nice.

One of today’s guest speakers was from E-Loan(one of Zip’s partners).  When I was rocking with Redfin, I remember closing quite a few with them. Cathy from E-Loan spoke about the Nehemiah program. I wasn’t too familiar with it but I promised myself that I would do some research on how it works when I got home.

Here is what I found out.

The program was named after Nehemiah, the biblical leader who re-built the walls of Jerusalem.  FHA(Federal Housing Administration) lending guidelines allow for the 3% minimum down payment to come from a wide variety of sources. Secured, borrowed funds, retirement accounts, and “Gift” funds from family members, employers or qualifying Non-Profit entities. There were a large number of organizations set up over the years to provide these “Gift or Grant funds”.

Typically they would charge fees ranging $500-$1,000 to perform this service. The program has been under fire recently, when a number of these organizations lost their “Non Profit” status after review by the IRS.  Always. The model was threatened and FHA decided to limit the program to organizations that were Non-Profits. Some of the big players in this market are Nehemiah and Quick Down.

First off, the seller must agree in contract to participate in the program. The seller agrees to make a “donation” to the non-profit in an amount at or above the amount being granted to the buyer. Typically the amount is 3% + the administrative fee that the non-profit charges (now around $500-1000). Once the seller has agreed to make the donation, funds are reserved for the buyer. The day before closing, funds are ordered by the lender with instructions from the escrow company regarding wire transfers or cashier check requirements. At closing, the funds are used for the down payment for the buyer, while part of the seller’s proceeds are sent off to the non-profit as a donation. If the seller has also agreed to pay the buyer’s closing costs, the buyer can get into the home with little or nothing down.

The program works and remains approved by FHA. Check the site.

Tomorrow, I will reach out to Nehemiah and Quick Down to get some other questions answered for me, overall, this may be another piece to assist my clients in purchasing a home in today’s current market.

I just finished looking at the photos online; it is a 4 bedrooms - 4 bathrooms - 2,541 square foot whopper sitting on a huge parcel. I am so happy for those clients; after all I really went to bat to help them acquire this property.

From my notes, this home endured multiple bids as a short sale. The agent that was representing the seller is a Super Lister in San Diego and his assistant did his best to assure me that we would be able to get this short sale approved. During my last week at Redfin, I wanted to make sure that my clients were comfortable with the transition. My client ‘let’s call him Ryan’ for the sake of privacy, was a really nice guy. I explained to him why I was leaving, he understood. Likewise, I told him that his next agent would do her best to help him. He and his wife were in love with the home and I was more than happy to get it for them.  It was all worth it. I must admit that my twice a week call schedule and persistent email inquiries to the listing agent have a way of paying off. In this case, even if I am not at Redfin, it is important to me that Ryan and his wife received the home that they waited so patiently for.

So this is what I did,

During the negotiating process, my client wanted to come in at the bottom of the range, in my world, I am okay with that. (To me the most important aspect with any client relationship is trust; this must be established, one of the ways that I do this with my clients consists of them leading me in price at least initially. Just LISTEN. I realize that there are several negatives to this approach but, when you are working with internet based clients you have to be open this type of strategy.)

My clients were a little apprehensive of the bidding process. After a few calls from the listing agent he informed me that there were several other offers in the pipeline, I let my client know. We submitted the offer at the low part of the range, 450k. The listing agent stated that he wanted our ‘highest and best offer’ , I told him that we would be willing to come up in price only if he guaranteed that he would take the property off the market, (super important) so not to invite other offers to the table. He agreed. So we came up 19k. Our research was still telling Ryan and me that we were still significantly lower than the closest comp. I kept telling Ryan that it will only be a matter of time, most buyers and agents will focus their attention to other homes.

Fast forward, almost 2 ½ half months later. Here I am reading their lovely prelim with all the appropriate details. So what does this all mean, well it means I get to add another property to my short list in San Diego. It also means, that it brings my total to REO/Foreclosure/Short Sale deals to a grand a** spanking 13 transactions. Not bad from a guy who grew up in the Excelsior district of San Francisco and only moved here to Sunny San Diego 8 months ago.

Last week I was in San Francisco for a board meeting, I asked my mother if she remembers her first short sale, she laughed and said, “Those things are terrible”, I smiled. Mom always know best.

A few years ago, another individual that I trained sat in my car as I drove him back to his car that was parked at BART and he said, “I don’t think I can do this job”. I told him the same thing that I told my trainee today.  I said, “I would have not recruited you if I did not think you had the skills to do this job”. Now he is a top producer at Redfin. Everybody wants to be a rainmaker, but for me developing talent has always been something that I have taken a great deal of pride in.

It has been over 8 years since my first offer, but the happiness that I felt on that day is something that I live vicariously through the agents that I train.

I am actively meeting all my clients in person now, something that I did not do while I was at Redfin. For me specifically, the fact that I did not meet my clients dehumanized the whole process. Don’t get me wrong, I did my best with each of my client experiences. On average, I received a 92% customer satisfaction rating. My last review was the lowest of the 5 ratings, I received an 87%. I have thought about why my score was so low during my last few months at Redfin. (Tough times) I am convinced that my performance mirrored my morale. (During my last month at Redfin, I closed 7 transactions.) Fortunately,  I am feeling much better now, and I know the experience that my future clients will receive will reflect accordingly.

Comparatively, Redfin transacts business in 6 markets while ZipRealty is in 37 markets and boasts 2700+ agents averaging a half deal a month.

When I decided to leave Redfin, I knew that I could not go back to selling traditional real estate. How could I? So I decided to reach out to the competition, after speaking with one of their recruiters I thought that the skills that I developed at Redfin would be valuable at ZipReatly, fortunately I was right.

Ultimately, ZipRealty.com is a lead generator for agents and brokers.  The website provides a search engine for buyers and sellers to transact real estate. Our compensation is directly correlated to our production and is primarily commission, where Redfin on the other hand paid a salary/bonus that was correlated to the overall satisfaction of their customers. In my case at Redfin, I was there for 21 months, closed over $54 million in residential sales closed 60 transactions and was paid $136,000+- (Salary, Bonuses, MLS Fees, Cell Phone Bills, Mileage Reimbursement, WiFi access and my coffee shop breaks). If I had done that at Zip, my 60 transactions would have been close to $360,000 after expenses and fees to the firm (Average $6000/deal x 60 transactions).

Redfin offers 2/3rds of the buyer’s agent commission as a rebate back to the buyer while Zip on the other hand, pays only a 1/5th of the buyer’s agent commission as a rebate to the buyer. At the end of the day, real estate still requires a personal touch, something that Redfin’s model lacks severely. Zip will give me a chance to focus on quality not just quantity(ahh, the old cliche’). Although, because of my training at Redfin, my balance of quantity & quality will be much higher than a normal traditional agent.

Redfin was an awesome experience for me; it gave me the opportunity to work with some uber-talented people. Heck, I would not have trained half their California staff and recruited my previous sales team(Chris Diez & Ernesto Pineda) to replace me in San Francisco. Hell, I would have stayed, but something was telling me that it was my time to move on.  One night after dinner my wife made a great point, she said ‘if you are not happy, then it is time to move on’.  She was right. Talent never goes unnoticed; I guess that is why I ended up at the competitor.

Over the next few months, I will employ all of the skills that I learned from Redfin with my new team. It is going to be an experiment somewhat, because the old formula at Redfin will be tested. Redfin always thought that in order to become a ‘Redfin Super Agent’ new agents must be fast, young, computer savvy and effective on the phone. I start my current project to prove them wrong.  I realize that you can’t teach fast or youthfulness, but I am a strong believer that efficiency, effectiveness, and a commitment to service can be taught to anyone.

My current goal calls for me to apply, innovate and smash two very similar models in a hybrid that I see materializing. Wish me luck.

In everyday practice, PMI is necessary when a buyer makes a down payment that is less than 20% of the sales price or appraised value (in other words, if the loan-to-value ratio (LTV) is 80% or more). (Hence the rise of the piggy back loans and 100% financing the thorn in today’s mortgage society.) Once the principal is reduced to 80% of value, the PMI is often no longer required. It can happen as a result of a mortgage pay down or through appreciation of the subject property.

The nation’s larges provider is the PMI group (PMI, NYSE) based in Walnut Creek, CA. which services its product for residential mortgages, public finance obligations and our favorite ‘asset backed securities’. In the fourth quarter of 2006 they recorded a net income of $100.5 million or $1.19/share; during the same period in 2007 they recorded a loss of $1 billion or $12.51/share. Here is a snap shot of their stock chart over the last 3 years. The stock was as high as $50/share in May of 2007; the stock is trading at $5.97/share as of May 09, 2008.

According to PMI Group, they expect to pay mortgage insurance claims for its US operations in an amount of $825 - 975 million; this can only mean that the weather is not going to be changing any time soon. Buyers are going to traverse even more obstacles to procure what once was ‘easy money’ and practitioners like me are going to see a real need for seller financing.

Over the years, while I have watched the FED’s movements and they have always been very defensive. Generally, the FED responds to changes in the currency-holding habits of the public.

In addition, the FED also lowered the Discount Rate to 2.25%. Depository institutions, commercial banks and other associations can borrow from the Fed at this rate. A key feature of the discount rate is that it is lower than the bank lending rates. For example, banks loan money to customers at a rate of 6.5% per year, but borrow from the Fed at a lower rate. I have found that the speed at which this rate is raised and lowered is an indication of how much the fed is concerned about interest rates and the money supply. In the 80’s short-term rates were extremely volatile and often exceed the rates on long term debt. During that period, the discount rate changed almost daily in an effort by the fed to stabilize interest rates. Lowering the discount rate will increase the money supply. Like I said they are just playing it safe.

     So what does this all mean, in the short term there these changes will not have a direct effect to the average tax payer. The move was an effort to lower bank interest rates, which would lower borrowing costs, hopefully increase lending, strengthen the dollar, optimistically increase demand in good and services, and finally lower the unemployment rate.

I realize that is a pretty long wish list, we can only hope that the U.S. economy improves.

It is actually quite rare for so many Redfin members to be in one place at once, but this was considered a special day because of the number of short sales that have recently taken over the inventory here in Southern California. Of the 61 properties that I have sold for Redfin, 5 have been short sales and 4 have been non-judicial foreclosures (REOS, Lender Owned). Those 9 transactions have all come over the last 6 months. Keep in mind that I have written and represented over 32 other unsuccessful Short Sale/REO offers.

The first portion of the meeting was hosted by Dr. Kleinheinz he is the Deputy Chief Economist, I found it interesting that he compared the market’s environment to the volatility that occurred in housing in the late 70s and the recession of the early 90s. The numbers on this graph illustrate the changes year after year on the number of sales of existing detached homes in relation to the median price in California. He pointed out a 47% decline in the number of homes that are being sold in California and its outstretched effects. Truth be told, everything from construction, to financial services, Fortune 500 company lay offs, Washington Mutual Branch closings, escrow companies, title company closures, out of work insurance agents, jobless home inspectors, and appraisers are all the effects of the economy.

Which begs me to ask, how bad is it? Are we through the worst part of it, or is there more to come. Are we just at this beginning of this meltdown? Some analysts feel we are on our way out of the recession. They are encouraged by Fed’s stimulus plan, but have we not forgot about the second set of Adjustable Rate mortgages and Negative Amortized loans that are coming due in the next 2 years. Has it exploded? On average I speak to about 6 new clients a week, my discussions always center on whether this is a good time to buy or should they wait it out. I have always felt that if you can afford it, I mean really afford it then buy. On the contrary, it seems that my conclusion may have been short sighted. According to this chart, a little less than 50% of Californians could afford to buy real estate back in 2003. But the fact that buying a house seems affordable doesn’t necessarily mean really that those households can take on the responsibilities of owning real estate. A quick scan of the 90,000 short sale listings on Countrywide’s inventory list would lead one to believe that even though one can afford to buy a home on paper that is not a compelling reason to buy.

What happened?

Greed happened. Foreclosures and short sales happened, agents stopped selling, buyers stopped buying, banks stopped lending, people overextended themselves, and people did not realize that the ride was cyclical. Maybe, this is my stop.