Nov192013
The many ways realtors “educate” us with false information
Is it okay for salespeople to lie to us in order to close a sale?
Was your first reaction, “No, of course not?” It is for most people, but when you reflect on it, salespeople are encouraged to lie to us and manipulate us all the time, and we all put up with it. In fact, we train salespeople to do this, and we reward them for it. Don’t believe me? Consider this example. …
Does this make my butt look fat?
Perhaps this analogy is politically incorrect, but… Imagine you are shopping for clothes in a high-end retail outlet. You are trying on an outfit, and you are concerned about its appearance, so you ask the salesperson, “Does this make my butt look fat?” What is the salesperson to do?
If the salesperson responds, “Yes, that is not flattering to your shape,” they fear they will not close the sale, so even if the garment does, in fact, make your butt look fat, the salesperson is probably not going to tell you. As a customer, you asked a question hoping for accurate information to help you make a purchase decision. What you are likely to get is a self-serving answer that makes the salesperson money.
If a buyer walks out of the store with ill-fitting or unflattering clothes, who is to blame? Is the buyer responsible for failing to see the conflict of interest, or is the salesperson at fault for dissembling for dollars?
Dissembling for Dollars
There is good money in lying. If you have no conscience, or if you are particularly good at rationalizing your bad behavior, there are many professions that offer huge rewards for being a good liar. Consider politicians. Have you ever seen an honest one? Politicians lie about two-thirds of the time, and tell the truth about one-third of the time. Unfortunately, there is no way to tell which is which. What makes it difficult to be a politician is that they know they are lying. Each and every lie they tell is coldly calculated. This differs from many of the lies told by realtors. The smarter ones know they are lying, but many of the lies told are spoken in blissful ignorance. But does lying out of ignorance make it any better? I don’t think so. Easier perhaps, but the outcome is no better for the person being lied to.
Educating legions of liars
And what about the sales trainers. They must have the most difficult job of all. They know they are lying, so they have the same burden of conscience that a politician has, and they are spreading those lies to others, many of whom will repeat those lies innocently. It’s a bit like a corrupt religious leader or minister who knowingly uses their position of authority to commit evil deeds. What should we do with those who “educate” those who in turn “educate” the populace with unmitigated bullshit?
Consider this article from Builder Magazine:
Rising Interest Rates as a Marketing Tool
Show potential buyers why they can’t afford to wait to buy a new home.
By Mollie Elkman — Posted on: November 14, 2013
Home builders looking for a new sales hook in 2014 don’t have to search beyond the Website homepage of their their favorite news source. U.S. interest rates are at a 50-year low but they won’t stay there forever. Market insiders predict that rates could start rising soon, although most federal officials are eyeing 2015, according to CNBC. Jay Brinkmann, chief economist of the Mortgage Bankers Association, said he expects mortgage rates to rise above 5% in 2014 and to increase further to 5.3% by the end of 2015.
This is a consultant giving sales advice to potential clients. All seems above board doesn’t it?
With this in mind, the new year is the perfect time to craft your marketing message around the benefits of buying a new home while interest rates are at near-record lows. Don’t assume that your customers make that connection. Instead, educate them on how interest rates affect their buying power and why now is the time to buy. Use the threat of rising rates to create a sense of urgency.
Wow! She openly tells them to create a false sense of urgency based on a problem that’s huge for the builders but of little consequence to the buyer.
Let’s imagine what would happen if interest rates rise, and all potential buyers can no longer afford the builder’s products. Who has the problem? The buyers? I don’t think so. If all the buyers can’t afford the product — and rising rates impacts all buyers — then it’s the builder who has the problem. What this consultant is telling the builders is to convince buyers that the builder’s problem is the buyer’s problem. It’s not.
One of my clients, Atlantic Builders, is having success with its “Planning for the Future” marketing campaign. Its flier shows a chart that solidifies the statements being made with facts.
No. Their flier bolsters their bullshit with obfuscation.
In this way, the company is positioning itself as a trusted source of information on the housing market as well as a partner through the home-buying process.
How does baffling people with bullshit position oneself as a trusted source of information?
The copy points out that buying a home is an investment and long-term financial planning device, and provides potential buyers questions to think about before taking the plunge.
Here are some points to strengthen your low-interest-rate argument:
— A 1% change in the interest rate is equivalent to a 10.75% change in purchasing power.
Which means prices must drop by 10.75% to compensate.
— Rising mortgage rates do more to influence home affordability than rising home prices.
Which means builders with overpriced homes are screwed when interest rates go up.
— Home affordability is about more than a home’s price. Buyers must also consider the monthly cost of owning, operating, and insuring a home. As mortgage rates increase, the monthly cost of homeownership jumps.
And since total debt obligations are now capped at a 43% DTI under the qualified mortgage rules, buyers will qualify for smaller mortgages putting further pressure on homebuilder prices.
Also, remember that your stiffest competition is from existing houses (or “used houses” as us marketing pros like to say) and remodeling projects. I recommend marketing strategies to my clients that reinforce why and how new homes are better, with lower energy bills and upkeep. Show them that the quality of your construction and materials are superior in a way that’s interesting and easy for them to understand. …
The false premise is that any decrease in affordability is a problem for the buyer. In reality, it’s a problem for the seller. With the new qualified mortgage rules in place banning most affordability products and requiring lenders demonstrate the borrower has an ability to repay, unlike past cycles when toxic loans could bail out sellers, rising rates will force sellers to accommodate the financing power of buyers. If anyone needs to be educated on this new reality, it’s builders, realtors, and sales consultants.
On a more basic level, the problem I have with this “education” is that it’s really manipulation. It’s self-serving propaganda designed to cajole people into action when it may not be in their best interest. There is no consideration whether or not the advice is helpful to buyers or an accurate depiction of market reality. The only consideration demonstrated here is for the self-serving needs of those providing the “education.”
Am I making too much of this? Is it a common problem?
Consider this piece of “education” put out by the NAr at the peak of the housing bubble. They intended to “educate” people why the worst time to buy in US history was actually a great time to buy.
Is it possible the good people at the NAr were concerned with the truth, and they were just foolishly mistaken?
Well, anything is possible, but based on their past behavior, it’s safe to assume this was bullshit (information presented without regard for truth) designed to motivate buyers and sellers to generate real estate commissions. In other words, it was self-serving manipulation.
Has anything changed? As another example of what I’m talking about, consider the following article. It is actual advice being proudly given by agents to their clients today.
Top lies and manipulations realtors use today
Don’t forget that rent is a variable; it will likely be much higher five years from now.
While this is true, if a buyer overpays, their cost of ownership is fixed at a much higher payment than rent. Further, the cost of ownership is only fixed if the buyer has the wisdom to use a fixed-rate mortgage. ARMs won’t cut it.
The market hit its bottom last year. So far, this year’s prices are up by about 10 percent since last year’s and home values are continuing to increase.
This is a stealth version of buy now or be priced out forever. The false urgency behind that statement is palpable.
The market is shifting, so you have to be aggressive with your home search because properties are selling quicker with multiple offers.
Another attempt at creating false urgency. Last month, a buyer I know closed escrow on a house. He was originally looking earlier in the year when the frenzy was at its peak, but he put his search on hold while the frenzy died down. The house he offered on had no competing offers, and he was able to negotiate a good deal for his family.
Don’t overbid during a frenzy would be better advice — it’s a longer path to a commission, so agents won’t say it, but it’s a truer path to a satisfied customer.
Don’t get hung up on price. The question should be: Does this purchase improve your living?
“Don’t get hung up on price” is code for “overbid and get this property so I don’t have to work as hard.”
When you feel the feeling of finding your dream, act quickly.
In other words, be stupid an impetuous and put yourself into a financial bind based on foolish emotion. What could go wrong?
And the best for last…
Buy the “most house” that you can comfortably buy, and, even perhaps, push yourself to the limit of your pre-approved amount. Thus, you will be satisfied with your purchase for a longer period of time.
This is stupid on many levels, so allow me to untangle it.
First, it makes the assumption that people grow increasingly dissatisfied with their houses over time. Why would that be so? Perhaps if they could only afford a tiny 2-bedroom condo, they might want more space when they have children, but then again, perhaps they shouldn’t have purchased a tiny 2-bedroom condo and rented instead.
Second, making yourself house poor is never a good idea. I recently wrote about emerging loanowners stepping down the housing ladder. Many people bought too much house, and when rapid appreciation didn’t make everything turn out for the best, they downsized and bought a house they could afford.
Third, telling people to stretch to the max is mostly a self-serving line from a realtor hoping to maximize their commission.
When liars are exposed for what they are, how does the general public generally react to them?
Most Americans don’t trust real estate agents, poll finds
Hoocoodanode?
[idx-listing mlsnumber=”PW13229659″]
840 South YORBA St Orange, CA 92869
$499,900 …….. Asking Price
$237,000 ………. Purchase Price
7/17/1992 ………. Purchase Date
$262,900 ………. Gross Gain (Loss)
($39,992) ………… Commissions and Costs at 8%
============================================
$222,908 ………. Net Gain (Loss)
============================================
110.9% ………. Gross Percent Change
94.1% ………. Net Percent Change
3.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$499,900 …….. Asking Price
$17,497 ………… 3.5% Down FHA Financing
4.39% …………. Mortgage Interest Rate
30 ……………… Number of Years
$482,404 …….. Mortgage
$135,210 ………. Income Requirement
$2,413 ………… Monthly Mortgage Payment
$433 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$104 ………… Homeowners Insurance at 0.25%
$543 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,493 ………. Monthly Cash Outlays
($626) ………. Tax Savings
($648) ………. Principal Amortization
$28 ………….. Opportunity Cost of Down Payment
$145 ………….. Maintenance and Replacement Reserves
============================================
$2,392 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,499 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,499 ………… Closing Costs at 1% + $1,500
$4,824 ………… Interest Points at 1%
$17,497 ………… Down Payment
============================================
$35,319 ………. Total Cash Costs
$36,600 ………. Emergency Cash Reserves
============================================
$71,919 ………. Total Savings Needed
[raw_html_snippet id=”property”]
[raw_html_snippet id=”newsletter”]
“as soon as we renounce fiction and illusion, we lose reality itself; the moment we subtract fictions from reality, reality itself loses its discursive-logical consistency.” -Slavoj Žižek
We live and love our lies. I find that when I speak the truth that I create discomfort and sometimes even anger. Then when they find out the truth for themselves they deny that anyone could have known and then experience frustration and anger. All of that is a logical consistency woven by lies.
In an environment where a client has no recourse against the salesman, there is only cost to telling the truth. Do a game theory experiment and see how many would lie. Hell, the buyer will buy anyway, who cares if they are mad at me afterwards if they can’t sue me. Tell the truth and lose the sale to the liar.
Our incentive systems are broken and very well may be beyond repair.
My entire business rests on the premise that there are people willing to live in a reality-based environment. The success of this blog shows there are some willing to accept the truth. It’s limitations shows how many reject reality at every turn.
People may be willing to live with the truth. But belief is always more powerful than truth.
Fiduciary Duty –> An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.
“We live and love our lies”
We live in culture of instant gratification.
I can’t think of one other consumer product (with the possible exception of automobile sales) in which so much incorrect information is exchanged between sellers and as well as buyers.
Ironically, of course, the consequences from a financial perspective are huge.
One theory I have is that some buyers actually *want* to be lied to, simply because they then can become something they are not, if even only for a short time, sort of a Walter Mitty day fantasy but inside a longer time frame.
Reality only hits when mortgage payments can no longer be met and the easy money checkbook runs dry.
A good example of this mindset, I think, was during the HELOC, Ninja loan era, in which Joe Sixpack was told that he is now an instant millionaire.
Binge spending, like binge drinking can be great fun until its time to deal with the headache.
Freddie Mac Trains Brokers to Manipulate Buyers to Inflate House Prices
Freddie Mac launched a new program this week to train real estate agents in the art of preserving local home values through the effective sale of properties tied to the enterprise’s HomeSteps initiative.
HomeSteps is the Freddie Mac sales unit that markets and sells Freddie Mac REOs to homeowners and investors.
San Diego-based Community Asset Solutions developed the Certified Community Stabilization Expert program, which draws on the best sales and home preservation lessons from the housing crisis.
“The new CCSE certification program distills the REO sales and community preservation lessons of the past four years to give HomeSteps brokers a practical guide for boosting REO sales and stabilizing communities,” said Chris Bowden, senior vice president of HomeSteps.
The new program consists of an eight-hour online course that helps real estate professionals work more effectively with nonprofits and local governments.
“CAS is excited to work with HomeSteps on this ground-breaking program to give listing brokers the proper tools necessary to create neighborhood stabilization solutions and help turn an unfortunate situation into a positive outcome for communities throughout the country,” said Gary Acosta, Co-CEO of Community Asset Solutions.
Private-Public Collaboration Results in 8M Future Foreclosure
Collaboration between the private and public sectors has resulted in 8 million non-foreclosure solutions completed for at-risk families since 2007, according to HOPE NOW, a voluntary alliance of mortgage servicers, investors, mortgage insurers, and nonprofit housing counselors.
Over the last six years, the mortgage industry has completed more than 6.71 million permanent loan modifications, based on HOPE NOW’s data. Of those loan modifications, more than 5.4 million were made through servicers’ proprietary programs and 1,268,635 were completed under the federal government’s Home Affordable Modification Program (HAMP). In addition, since December 2009, short sales total about 1.39 million.
HOPE NOW reports approximately 181,000 homeowners received permanent loan modifications from mortgage servicers during the third quarter of this year—136,000 of which were proprietary and 45,136 HAMP mods.
Looking at non-HAMP loan modifications from the month of September, HOPE NOW’s report cites key characteristics that generally go hand-in-hand with more sustainable mortgages.
The alliance says mods that included fixed interest rates of five years or more accounted for 93 percent of the month’s
total. Seventy-six percent reduced borrowers’ principal and interest monthly payments, and for 71 percent the principal and interest payment reduction was more than 10 percent.
Short sales totaled about 67,000 during the July-to-September period, with 19,000 completed in the month of September, according to HOPE NOW’s market data. That monthly total is down 17 percent from 28,000 completed short sales in August.
Foreclosure starts were estimated at 93,000 in September vs. 99,000 in August—a decline of 6 percent. However, for the full third quarter, some 290,000 foreclosures were initiated, compared to an estimated 499,000 initialized during the third quarter of 2012.
Completed foreclosure sales tallied an estimated 51,000 in September, down 12 percent from the 58,000 foreclosure sales recorded for the month of August.
Delinquencies of 60-plus days were approximately 2.08 million in September, representing virtually no change from August, according to HOPE NOW.
All key metrics in HOPE NOW’s report were down when comparing Q3 2013 to Q3 2012. Loan mods declined 22 percent, from 233,000 in the third quarter of last year to approximately 181,000 in this year’s third quarter.
Short sales slipped even further with a decline of 39 percent. Short sales completed last quarter tallied approximately 67,000 vs. 109,000 for the same period last year.
In addition, foreclosure sales dropped 15 percent annually in the third quarter, from 196,000 to 167,000.
HOPE NOW executive director, Eric Selk, said the agency firmly believes the eight million foreclosure alternatives completed by the group since 2007 “are proof of the success of the unprecedented collaboration between the private and public sectors.”
Beaten Down Markets Continue to Inflate While Safe-Haven Markets Flounder
Rising home sales and declining foreclosure sales have driven the highest quarterly price increase since the national housing recovery began, according to the latest FNC Residential Price Index.
Prices rose 2.5 percent during the third quarter, according to FNC., which observed prices in the 100 largest metro areas in the country. The company found that national home prices have risen 11 percent since the beginning of the recovery, a timestamp that FNC considers to be the start of 2012.
“Continuing to lead in the recovery are the markets in high distress during the 2008-2009 mortgage crisis,” FNC noted in a statement to the press.
Phoenix posted the highest cumulative price gain since the start of the recovery—a 46.2 percent increase.
The rest of the top five gains were recorded in Las Vegas (38.3 percent), Riverside, California (23.5 percent), Los Angeles (22.7 percent), and Orlando, Florida (20.5 percent).
The FNC 100-MSA index recorded a 0.5 percent price gain over the month of September.
Prices increased 6.2 percent from September last year to September this year and 5.7 percent from the third quarter of 2012 to the third quarter of 2013, according to FNC.
FNC reported 27 of the 30 metro areas in the FNC 30-MSA index experienced rising prices over the month of September.
Miami and Riverside, California, topped the index with price gains of 2 percent over the month. They were followed closely by Baltimore and Charlotte, North Carolina, both of which posted increases of 1.9 percent.
The three cities to register price declines in September were St. Louis (-1.3 percent), New York (-0.6 percent), and Denver (-0.3 percent).
Both Denver and St. Louis experienced a rise in foreclosure sales in September, which FNC deemed as the culprit in both cities’ September price declines.
In St. Louis foreclosure sales made up almost 30 percent of September home sales, according to FNC.
Report: Homes Looking Overvalued in Coastal California
Home prices appear to be overvalued in parts of coastal California and could soon eclipse their bubble-era peaks given recent rates of price inflation, according to a report released Wednesday by Fitch Ratings.
The report estimates that home prices nationally have increased 13% over the last year, leaving prices 17% above a so-called “sustainable home price,” according to the ratings agency, though there’s considerable variation geographically.
The Fitch model looks at traditional drivers of home values, including incomes and rents, to impute a “sustainable” price for a given metro area. Cities where price indexes rise above those levels are considered overvalued, and cities where the indexes fall below are undervalued.
Home prices in the San Francisco Bay Area are around 30% overvalued by this metric, having risen 20% over the past 12 months, the largest increase for the area in the last 10 years, writes Stefan Hilts, a director at Fitch. At the current pace of growth, San Francisco prices will be at their peak by early next year. In nearby San Jose, Calif., prices are just 11% below peak and are on pace to hit a new record in around six months.
The report notes that the Bay Area, of course, has seen better-than-average economic growth. It’s also land constrained, making the region more susceptible to home-price volatility. But the report warns that an uptick in investment purchases and home flipping could be driving speculative—and ultimately unsustainable—price gains. (One thing that’s very different from a few years ago: exotic lending has virtually disappeared. Many homes are selling to buyers that aren’t taking out mortgages to purchase the homes). …
“When an expectation of rising rates is coupled with rising prices, there could be increased pressure on the housing market that could reverse recent [price] gains,” said the report.
Here are some expressions I use to describe liars and thieves.
Paraphrasing Tom Bodett (Motel 6 commercials and funny books): “XXXX exaggerates so much that you should take anything he says, subtract 2, divide by 3, and don’t believe the rest.”
From an old Caltech saying about Chemical Engineering majors: “If you shake hands with anyone up there, you’d best count your fingers afterwards.”
From my current day to day work: “There are lies, there are damned lies, and then there are earned value metrics.”
A lie is a truth not yet believed.
The biggest lie realtors tell the public is …
Now is a great time to buy a home due to mortgage rates still being low.
Yet nothing could be further from the truth. Low mortgage rates and easy money increase purchasing power. When competing with other buyers who also have increased purchasing power, home prices are bid up. When home prices are bid up to levels like we have today, the govt/FED/banks/REIC do everything they possibly can to keep mortgage rates on a perpetual declining path.
Now to the cost of these cheap mortgages!
Today we still have mortgage rates near all-time lows (at least since WW2). And what is the cost of all this?!? The govt now borrows about .25 cents of every dollar to fill the budget gap. The FED dumped the fed funds rate to 0%, and pumps 85 billion into the banks every month. The govt subsidizes housing with an inequitable tax scheme and perceived back stopping of govt real estate entities … to the tune of billions!
HOW MUCH LONGER IS THIS LIE GOING TO PERSIST!
What’s going to happen to all the people buying overpriced homes when the inevitable rise of mortgage rates happen? This day is approaching.
“…What’s going to happen to all the people buying overpriced homes when the inevitable rise of mortgage rates happen? This day is approaching…”
What will happen is the same thing that happened last time, but on a smaller scale probably. Even if your monthly housing cost is close to rental parity, that doesn’t matter if any of life’s hiccups come your way – income loss (even just for a month or two by one spouse), divorce, health issues, etc. When Murphy arrives, that underwater house will feel like an anchor pulling you down every month.
“What will happen is the same thing that happened last time, but on a smaller scale probably.”
That’s what I see coming too. We will inflate a mini-bubble due to all the stimulus, and the people who fall for it will get hurt to the degree they overborrowed and overpaid just like last time. Hopefully, this time, they won’t be allowed to overborrow and overpay quite so much.
One of my favorite lies: A chart showing interest rates and home prices is proof that interest rates are not a causational factor in home price changes.
That’s a good one.
Effects that interest rates *should have* are irrelevant considering the fed’s unofficial yet obvious moves to benefit TBTF banks with their rattling sabers.
What should happen gets taught in economics class, but what *did* happen is fiscal policies were set in place to indemnify banks while news releases were issued to misdirect observers into arguing the cost to the taxpayer for damn liberals helping the foolish keep their homes who cannot afford them.
This is in basic agreement with what IR has said in numerous ways over the last couple years.
USA’s future got looted by about $7 trillion in Q3 2008 for the nonbinding intent to promote lending.
Such a horrific financial burden saddled the incoming 2008 regime with some challenges to solve just in case the new administration be tempted to help disenfranchised laborers, or worse yet to reform laws on corporate rights or funding elections. This after delivering the crash of 2007, the most expensive wars in history, a failing economy, unfunded tax subsidies for the wealthy, howling over “entitlements” and the final nails in the coffin of labor in the New Deal America.
When you own the media, you can do all that and still claim to be like “the adult in the room.” When you don’t own the media you can mobilize and occupy and suffer sanctions and enforcement, or suffer your own disappearance.
“One of my favorite lies: A chart showing interest rates and home prices is proof that interest rates are not a causational factor in home price changes.”
Everyone who makes this argument — and I’ve seen esteemed economists make this argument — ignores the deeper question of why the correlation was weak in the past. When you examine the reasons, you realize that the methods used to overcome the gravity of interest rates can’t be used again because most of these tricks were banned by the qualified mortgage rules.
Foreclosure prevention program may not assist those most in need
It’s hard to know who exactly will be targeted by Richmond’s radical principal reduction program—which proposes buying or seizing 624 underwater mortgages, possibly through eminent domain.
The list hasn’t been made public, but Richmond Confidential obtained a list of 602 of the 624-targeted mortgages, which we’ve mapped above. When comparing a map of the homes the city has targeted for assistance to a map of foreclosed properties in the city, one thing is clear: They’re pretty different. The areas with the most foreclosures aren’t necessarily the neighborhoods that Richmond has targeted for relief. “A lot of the people that think they will be helped by this program will not be helped at all,” said Jeff Wright, a realtor and one of the plan’s most vocal critics.
Inevitably the city cannot assist every struggling homeowner in Richmond, leaving many curious if and how they will benefit. Vicky Conway is one of them. Her and her husband bought a home in the North & East neighborhood in 2004 for $325,000. She estimates their house is now worth less than half that amount. “I know that we’re not going to be able to retire and continue with the same mortgage payments,” she said.
You could say that Conway can’t afford her own house, but actually it’s worse than that: She could afford the current value of the house just fine — it’s the bubble-based mortgage that may break her. Any unforeseen expenses could spell disaster. “God willing nothing catastrophic happens,” she said. “My husband and I have talked about it…and if it got really bad we would probably walk away from the house.”
Like Conway, nearly half of Richmond’s homeowners are underwater—meaning their house is worth less than their mortgage. To prevent another wave of foreclosures, the city has proposed buying 624 underwater mortgages at fair-market value. If the banks refuse to sell the mortgages, the city has threatened to invoke eminent domain to seize them. The program is called Richmond Cares, and it would let the city substantially reduce the principal owed on the homes, making it easier for underwater owners to stay current on their payments.
Loans for farms used for vacation homes
Demand for hunting and fishing lodges in states like Montana, Texas and Wisconsin has led to an uptick in recreational-property loans that are increasingly competitive. Interest rates are typically low, starting at around 2%, and the loans often feature flexible repayment terms that can help borrowers’ cash flow, such as interest-only payments. And in some cases quarterly, rather than monthly, payments are required.
Most lenders in this market are customer-owned cooperatives that specialize in providing loans to farmers and ranchers for agricultural-land purchases. But they also extend loans to wealthy jumbo borrowers, even if the property won’t be used for grazing or another agricultural use.
Northwest Farm Credit Services, which is based in Spokane, Wash., and lends in Alaska, Idaho, Montana, Oregon and Washington, says it has been touting its low interest rates, which start at 2.6%, to buyers who had intended to buy these properties with cash. Their net rate can be even lower: The lender pays out an annual return to its members that has been averaging 0.75% over the past two years. Roughly 25% of its clients who have been purchasing $1 million to $14 million ranches over the past two years have been signing up for financing, says Mark Dvarishkis, a vice president at Northwest Farm.
GreenStone Farm Credit Services, which offers financing in Michigan and northeast Wisconsin, introduced recreational-land financing in 2006 in response to what it says was the first wave of demand from buyers.
The market varies by location, but most recreational ranchland prices peaked in 2008 and 2009 before dropping 15% or more. Prices seem to be stabilizing, and buyers are looking for opportunities to ride the market up. Jim Nowak, a regional vice president, says GreenStone has been funding up to five of the $1 million-plus loans for recreational land annually since it began offering them, a small sliver of the total loans the lender originates.
Affluent buyers may also be able to get financing if they have an existing relationship with a private bank or wealth management arm that belongs to a large bank. For example, U.S. Trust, the private banking subsidiary of Bank of America, offers financing for purchases and equity withdrawals for $3-million-plus ranches. Managing director Dean Lammert says the bank has been advising clients who own ranches to consider using them as leverage to finance other purchases. That can include withdrawing equity to buy another asset or pledging the ranch as collateral to buy anything from planes to commercial real estate in lieu of making a cash down payment, he says.
Unfortunately the industry is “self policing” which simply gives a thin but anointing cover for oughtright thievery without consequence.
As well many realtors offer their clients financial advice, for which most people would need to be regulated and licensed as such. One shouldn’t hold their breath for that to happen.
My .02c
I spent the time and money to bring a formal complaint against a realtor in Las Vegas. She was caught red handed forging documents. After denying it in her initial response to our complaint, she changed her story when confronted with the evidence. Despite the lie she told not passing the giggle test, the esteemed panel of realtors who sit in judgement chose to support her lies — even though they knew full well she was lying. They acted to provide cover for her theft — and succeeded.
A real estate salesperson has no legal obligation to act in the best interests of his or her client. Neither does a car salesman or the guy at Nordstrom who swears “you look great” in a suit that is not your style. It’s even worse when the realtor is representing seller AND buyer. Then the salesperson really has divided loyalty. If you buy a property and get a broker to represent you only as the buyer it’s better. Doctors and attorneys do have a legal obligation to act in the best interests of their clients. Whether you can really afford that house, whether the house is a good fit for you and your family, etc., are all YOUR problem…not the realtor’s.
I believe California requires a fiduciary duty of real estate sales licensees.
You are right. Will is dead wrong. Ask all the licensees who have lost their licenses because of thinking that Will’s opinion is correct.
Bonnie…do you mean to tell me that if I buy a house that is not right for me I can sue my realtor? I have never heard that before. An attorney and a doctor have a fiduciary interest to act in the best interests of their client. If they recommend a surgery that is not necessary they can be sued or even have their right to practice medicine taken away. A few years ago there was a huge scandal in Northern California because a doctor was recommending and performing unnecessary heart surgeries. He was disciplined for that – not sure if he lost his license. If a realtor sells me a house that really isn’t right for me of that I can’t afford, I can sue that realtor? I have never heard that before. A realtor has an obligation to behave lawfully, but that does not mean the same thing as putting the client’s interest first.
Will…..I sincerely hope you are not licensed! You are a lawsuit waiting for a place to happen. Probably, you would not have a case if a property “was not right for you”…..define that. But if a licensed person promised you gains in the future, or materially misrepresented any aspect of a sale/seller/buyer/financing etc., YES you would have a “lack of fiduciary responsibility” cause of action.
Fiduciary Duties Of A Real Estate Agent
Chapter 10 – Agency – California Bureau of Real Estate PDF
There is a fiduciary duty, but it wouldn’t apply in cases relating to someone expressing their opinion about the “rightness” of the property.
Due to the power of the mortgage interest deduction, I think rates will have to rise significantly in order to affect higher-priced areas (Irvine) much.
e.g. Let’s say you’re financing $900k at 4% to buy a $1.1m home in Irvine. At that price range, your household should be in the 33% IRS bracket and 9.3% FTB bracket (42.3% total). You can deduct every dollar of interest and it’s not affected by the AMT. That’s a $35,712 deduction in the first year, which works-out to a ~$1,250 monthly subsidy.
Let’s say you buy mid-2014 and the price is the same, but the rate is now 5%! Your monthly subsidy increases though, with the higher rate, to ~$1,575. So your net P&I is just over $300 more. If the rate is 6%, then your net P&I increases $600+, and that might affect purchasers in this price range.
Speaking of rates affecting purchasing decisions/power… We visited Rancho Mission Viejo on Sunday. It’s a gorgeous area very far away (a bit “closer” considering the toll roads available), but their sales have slowed considerably. Ryland is selling 2,400+ sq ft homes with views starting in the high $700s and offering a 30-year fixed 2.875% rate in this phase.
Due to the mortgage interest deduction affecting the next cost, that rate reduction isn’t very powerful – lowers your gross payment ~$500, but considering taxes it nets you about $300 less. I would prefer you lower the price $50k and give me a 4% loan – then my net cost would be lower than your asking price at 2.875%.
Larry, I have been a long time reader since your days at IHB. I have always appreciated your insight and your advice was key in my decision to become a first time home buyer last year.
I am now considering purchasing a rental property in Northwest OC/Long Beach, even though I know it won’t cashflow. With 25% down, I will be breakeven at best (assuming 10% vacancy rate and modest repair/maintenance costs), but the likelihood of being a couple hundred bucks in the red each month is also very real.
Despite that, I am close to making the plunge, as the pathetic interest rates in my savings accounts leave me feeling I have limited options. The reasons for investing despite being cashflow negative would revolve around inflation (and a corresponding uptick in rents), amortization of the principle and obviously appreciation. Am I out of my mind? I could conceivably go to a lower income area where the cost/rents would be a bit more favorable but I don’t have the stomach to deal with the type of renters these properties would bring. Would you ever recommend investing in a property that wasn’t cashflow positive?
I would not recommend buying a cashflow negative property. First and foremost, it provides you with no plan B. If it doesn’t go up in value and compensate you for the cash burn, you can’t rent it out to cover your expenses. This was the mistake many, many people made during the bubble.
Let’s say the property does go up and it provides you a reasonable return on your equity when you sell. Have you ever done a discounted cashflow analysis? If you have, you quickly realize that spending money up front for a lump sum well off in the future doesn’t provide a good return. Further, if you endure negative cashflow along the way, even the profit you do earn when you sell is made tiny by the cumulative negative cashflow while you owned it.
For me, cashflow positive is a line in the sand I simply won’t cross. The risks multiply many times over, and returns fall off a cliff.
You don’t have to go into a really bad neighborhood to find a property that is at least cashflow neutral. Ideally, you want to buy a property that has rent slightly below the average for the area, but not too low. You don’t want to compete with apartments, but you don’t want to pay the owner-occupant premium either.
For example, in Las Vegas, the average rent is about $1,100. Apartment rents are in the $700 range. Most of my properties rent between $1,100 and $900. This puts me above rentals but below the average for the city. Those houses are the ones least desired by owner occupants, but since they are solid houses in marginal neighborhoods, they get good rents.
There are many good properties just over the hill in west Riverside County, and some in the extreme northeast Orange County that are still cashflow positive.
Keep reading. In a few weeks, I will launch a new website upgrade, and you will be able to find cashflow properties everywhere they exist in Southern California.
Question for IR or Mike:
What do these Hope Now mortgage mods look like typically?
I mean, 8 million is a huge number. Are these mainly principle writedowns, lower rates, lower monthly payments, no doc refis???
What?
Or is the gov just giving away the farm to help the banks?
They’ve changed the standards on this program many times to qualify more borrowers. At first, they made minor changes, but they’ve continually made the deals better and better to try to juice their numbers. They may not have been giving away the farm when they started, but they probably are now.
HopeNow measures the proprietary non-HAMP mods, so it can include all of the above. Most of them are rate reductions and term extensions, with a smaller percentage including principal reductions or principal deferments..
This report has a lot of data if you’re interested:
http://www.hopenow.com/industry-data.php
No inflation.
Big Turkeys Are Harder To Come By This Thanksgiving
ust in time for Thanksgiving, the nation’s top turkey producer is coming up a little short.
Butterball, based out of North Carolina, told retailers that orders for fresh 16-pound turkeys and larger have been cut in half.
The shortage is nationwide.
Woody Hunt, manager of Rainbow Foods in St. Louis Park, says 40 years ago, Butterball was like the “Cadillac of turkeys.”
“Everybody wanted a Butterball, and if you didn’t have a Butterball on your table you couldn’t brag to your neighbors that you had the best turkey,” Hunt said.
Butterball produces about 20 percent of the nation’s turkeys. That’s about 1.3 billion pounds of turkey meat a year.
And the problem isn’t the production; it’s the size of the bird. Steve Olson, executive director of the Minnesota Turkey Growers Association, says turkey farmers in North Carolina may be struggling with higher feed costs.
“I think it’s a unique situation. And I think part of what’s maybe caused it is the industry as a whole kind of went through some cutbacks starting about 6 months ago due to the higher corn prices that we’ve been seeing for the past year,” Olson said.
The fresh, 16-pound Butterballs may come up short, but there will still be plenty of frozen ones. And at Rainbow Foods, there are plenty of other turkeys waiting to be carved.