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| It's no surprise, especially due to the subprime lending mess, that foreclosures continue to be a problem for real estate professionals. And news of the foreclosure problem floods the media nearly every day. What are agents to do? Industry experts John Mayfield and Dave Beson weigh in on how agents can persevere until the market corrects. For more information, listen to this audio clip/podcast from John and Dave as they discuss more issues and trends about foreclosures. |
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| Economists have an impossible job. To keep their posts they must be exact in describing what will happen, but be vague about when. Or they must be vague about what will happen and attach specific dates. But once they combine a specific outcome and a specific date, they run the risk of obviously missing the boat! President Reagan's staffer, Lynn Nofziger was fond of saying "If you take all the economists in Washington and place them end to end---that would be good!" |
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| Well, as real estate professionals, we are called upon to see into the economic future for buyers and sellers and to prescribe the proper strategy and timing. Aren't we? How are we being tested? Let us count the ways: |
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What is a property worth? |
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| The tried and true definition was "what a willing buyer will pay a willing seller, at arm's length without undue duress." Yet today, in many markets, there is plenty of duress. Foreclosures are ramping up in most every state, with Indiana, Michigan and Illinois taking turns with Las Vegas, California and Arizona and Florida as foreclosure capitols. There are at least three major groups affected by foreclosure today: |
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Speculators. The desire to win a large profit in a short period of time by flipping, or otherwise speculating in real estate has caused a lot of "non-investors" to buy real estate with false expectations. Many flippers entered transactions
(1) without substantial down payments,
(2) without being able to perform on the closing of the purchase without creating financial havoc, and
(3) with a lack of understanding about how investment real estate works. Their best option? Walk away and leave the deposit behind. This penalizes the builder who is already reeling from a combination of slow sales and fast turn backs. |
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Just plain folks. Lots of people were too enthusiastic about their futures, and the prospect of winning the lottery in real estate. They bought too much home, more than they could afford. This was often caused by sub-prime financing and easy lending with artificially low starter rates which either have or will re-set to much higher rates. While these people thought they could cover their costs and stay in the game, the lack of appreciation or actual depreciation of their property and the new higher payments combined for a double-whammy. Now they don't want to reach, or can't, to afford their property. With an economic slowdown and layoffs, many find it impossible to manage their loans. Their best option? Try to renegotiate their terms with their lender and or seek legal counsel. |
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By-standers. Neighbors watch as their property value plummet as houses on their street sell for less, and less, or don't sell at all. They must remain positive and think longer-term while this crisis works itself out. How long will it take? Two years? Four years? Longer? Old-timers who remember the RTC (Residential Trust Corporation) know that it took ten years to work out the problems caused by greed, fear, and excess. Will this crisis be any different? |
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Yes. |
Because the economy is still in slow growth or edge of recession mode, not in a deep recession. |
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Yes. |
Because inflation, so far, has been relatively muted, within the 2% range of the Fed's ideal situation. Of course energy must be excluded to get to this favorable number. |
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Yes. |
Because interest rates are low. Mortgages are available at 6%, plus or minus. This compares very favorably to previous rates in an economic crisis. In the late 80's we saw 15% -16% and higher rates. |
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Yes. |
Because the Fed and Treasury have intervened to create more calm and more certainty, early, rather than late. |
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Yes. |
Because real estate agents can respond almost instantly in marketing, selling, and communicating, thanks to the Internet and technology advances. So this is where you should focus your attention. |
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What you can do: |
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Search the Internet for properties and current pricing. |
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Prepare CMA, listing presentations, neighborhood snapshots and more on the Internet and email to customers and clients. |
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Carry the MLS with you on your Smartphone or Notebook PC using POCKET MLS, and other mobile connectivity software. |
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Use your Smartphone to open lockboxes, summarize expenses, track appointments, and remind you of appointments, calls, and activities. |
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Stay connected with your clients! Remember that for many of your clients (especially sellers) this is a difficult time, and regular communication is essential. |
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Remain positive! Be selective about what you listen to and watch on a daily basis. What you're putting in your head each day will form your attitude and opinions about the current state of affairs in your marketplace and the real estate industry. |
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Remind yourself - "this too, shall pass." As with every downturn or economic slowdown in our nation's history, things will turn around and the market will rebound. |
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In Closing |
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| So the question begs, what can you expect as a real estate professional for the balance of 2008 with the current foreclosure crisis? We feel you should remain positive and believe for better and brighter days ahead. Let's face it, the brunt of the bad publicity and news is behind us. Many reports are already indicating that the sub-prime mortgage defaults are behind us, and we're headed in an encouraging direction. Through all of the chaos, many real estate professionals will decide to leave the industry for other types of work. For those real estate professionals who do stay around, the general laws of supply and demand will work to your advantage in 2008 and beyond. |
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| Finally, remember that for most consumers the typical reaction is to not do anything when bad news first surfaces. However, as time goes on and buyers and sellers become accustomed to the current state of affairs, many will enter back into the real estate market to do business again. Sellers will figure out ways to hang onto their mortgages until the market corrects in their area or they can find a buyer. Buyers will realize that there are some "great" deals out in their marketplace. |
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| As a real estate professional, make sure you're still a part of the business when the tides turn back. And by understanding a little bit about foreclosures and how to overcome this current market, you're sure to be a winner! |
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| Any views or comments expressed in this article are the sole responsibility of John Mayfield and Dave Beson and not necessarily those of any other organization. No person quoted or cited has any known connection to or interest in Hewlett Packard, and their appearance here should not be construed as an endorsement. |
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