Know Your Market Segment Volatility

The volatility of the real estate market varies by zip code and neighborhood. To make wise real estate investments you need to know something about the volatility of your market segment.

Are you buying the low end of the market, the mid price range of the market, or the upper end of the market?  How do you know?

You should analyze the market trends over the past 3 to 5 years if possible and look for trends for the lower third of the market, middle third and upper third of the market by zip code and neighborhood if large enough.

In analyzing your market, you will likely find that one segment of that market is more volatile that the others.  The spread between original price, list price and sales price will tend to swing broader in that segment.  The potential for bigger profits can exist here, but so can't the losses, because of its volatility. You may be better off choosing a less volatile segment, based on the trends you see.

The strategy here is for flipped houses and short term holds of a year or less. Longer term holds are based more on cash flows, rental rates and those trends in the market.

Where do you get this information? REALTORS have it, and you can see trend lines on Zillow and Trulia, but the more granular information is available from REALTORS and real estate consultants and others who have access to MLS data in your chosen market.

You decide your own tolerance for risk.  You decide the margin you are willing to accept based on the cash you're investing, market time and expected return.

Good luck!

Chris Michaud

Acceptance Group

chris@acceptancegroup.com

Selling Right! You Don't Know What You Don't Know!

Recently I had a client prospect request a value analysis of their property.  After spending about 7 hours total, inspecting the property, evaluating the market's property values and completing my opinion of the value range, a competitor apparently "bought the listing." This is not the first time this has happened over the 30 years I've been in the business, it's quite common.  What the innocent seller doesn't understand is that it's usually a costly proposition for THEM.

What these "agents" do is: rather than thoroughly evaluating the property and informing the seller of the REAL price range in the market, they ask questions like: "What did YOU think it is worth?"  If they don't get an answer initially from the seller they will try several more questioning "tactics" to get that number from the seller...even if it has no realistic relation to the current market value.  Why would they DO that?  Because when you "buy the listing" you take the price the seller "wants," ADD your commission fee to it, and often add another 10% or so to the price, and tell the seller "The market has been good lately, let's test the market at this price."  They have just told the seller what they want to hear.  The seller is now thinking: "Oh my, our property is worth even more than what we THOUGHT!"

So you THINK!

Actually, it's usually bad news!  Almost always this is bad news for the SELLER.  Here's an example.  Let's say the REAL value, as determined by market sales is $300,000.  Adding a 5% margin to "test" the market realistically, would mean an initial listing price of $315,000 to see how the market responds. If there are no offers in the first 30 days, the price should be reduced to the $300,000...actually, good marketing would be to price it at $299,900.  Here's how a rookie agent or less-principled one attempts to "buy" the listing. 

Let's say the seller has said, "I won't take less than $350,000."  They have no factual basis for the number in the market place, it's just what they "feel they need to have."  I may feel I "need to buy a new Mercedes for $20,000," but that's not going to happen, and neither is a home going to sell for $350,000, when the market clearly defines it as being worth $300,000.  What the unprincipleds agent or broker does is takes the $350,000 and adds, let's say a 6% commission to that number, which brings the price roughly to $370,000.  So it doesn't look TOO suspicious, this broker might then say, "Gee I THINK it could be worth as much as $385,000...though that may be reaching a little, but I definitely think you ought to TRY it at $379,900."  The seller is pleased.  After all, that OTHER broker said it was only "worth $300,000, and he might try it at $320,000 for 30 days. We can always come down."  Makes sense right? Wrong!

What Else You Don't Know

Here's what REALLY happens in the real estate market.  When a property first hits the market, real estate agents who are currently working with buyers who have yet to buy, as well as buyers who just have begun to look in the market, clamber to look at every new listing that vaguely approaches the parameters and price range of what they are looking for.  Today, with the advent of the internet with services such as Zillow, Trulia, REALTOR.com, FSBO.com and a number of other sites, property information is readily available.  The savvy buyer can also determine pricing trends, look up recent sales in the market and neighborhood of interest, obtain the tax values and even view the deed and mortgage in much of the country.  There really are no secrets about housing any more.  While at it, they can use free services like Google Earth, Google Maps, or similar products from others, to see overhead views of properties, streets and even the neighbor's houses.  With all that information, buyers and their agents alike know what is happening in any given market almost as soon as the data hits the web, and it all does.

When a property is overpriced a certain segment of the market rejects it out of hand because the price range is out of their affordability spectrum.  When $300,000 is at the top of a buyer's range, they will reject automatically anything over it.  Once buyers and agents begin comparing square footage data, features and amenities, buyers will reject a property on that basis too.  It doesn't take a "rocket scientist" to look at the square footage of one property and divide the price by it to get a "ball park" value, and make their own "guesstimate" as to any lot value and other improvements described. Buyers AND sellers have ready access today to the prices of SOLD properties over the past couple of years on Zillow and Trulia, as well as through the local municipality's tax record data.

Agents however view overpriced properties somewhat differently, ESPECIALLY those of a competitor.  An agent who has been working with a buyer and trying to position what s/he feels is a good buy for their buyer will USE and overpriced property to demonstrate what a "bargain" their preferred property is compared to the overpriced one.  Here's how that conversation might transpire: "Mrs. Buyer, I know you liked that home on Smith Street, but are waiting for something to come up.  Well we're in luck because another property just came up this week, and though it is in a different price range I think we ought to look at it because the description says it's so GREAT!"  Don't all property descriptions say they're great? They pretty much do, unless they're "basket cases." The appointment is made to view the new property.  The savvy buyer agent previews the property first, then goes back to the one the buyer had some initial interest in.  When the buyer and agent get together to view the new listing, the buyer discovers that the property is "nice" but not $50,000 or more nicer than the other one they "liked."  The savvy agent brings Mrs. Buyer BACK to the Smith Street property "just to compare."  The buyer agent already knows what they are going to say, it's something like: "You know Mrs. Buyer, this Smith Street home is really a good buy compared to the OTHER one, I think you could make this property work for you better for less money, or even put in another $30,000 IN and STILL be a better buy than the other one."  That's how a buyer's agent utilizes an overpriced property to sell the one(s) they want that are more realistically priced.  Sometimes, they can use the same property to sell several OTHER houses.  After all, in a Buyer Agency situation, the Buyer Agent has a fiduciary responsibility to the BUYER and NOT the seller.

So, What's the Problem?

There are several problems.  The overpriced property owner has begun to hear in earnest from "their agent" that they "may have priced the property a little over market, because all of these other properties have been selling."  Then, in order to not take any of the blame themselves, they intimate to the seller, "look WE KNEW the property was a little high, but WE AGREED to test the market for you, and it looks like the market is REJECTING it.  Maybe we ought to reduce it a little to catch-up to the market."  Smart sellers are beginning to remember how encouraging their agent was about "even being worth as much as $385,000," but they "can't remember for sure," and so they ask what the agent "suggests."  The agent then suggests, "well why don't we drop it to $350,000 this month and if it doesn't sell in 30 days, let's move it to $320,000." The startled seller will quite often have nothing to do with "such a drastic reduction," so they "settle" on reducing the price to $350,000. 

The house doesn't sell of course. The market moves on, and worst of all time creeps along.  Time is the motivator this type of agent relies on.  The seller is selling for a REASON and they hope that the reason begins to provide the type of motivational PRESSURE they need as an ally to get the price reduced "for the market."

By the time the price gets down to where it should have been in the first place maybe 8 months later, the market has changed.  Not only that, but now agents are reluctant to show it, and buyers who have been looking and seeing the property still for sale after 8 months begins to say to themselves, "I wonder what's wrong with that property...it must be overpriced, or have something wrong with it.  I wonder what it is?"  At this point the 1st or 2nd listing extension is beginning to run out and the listing agent for the overpriced property begins to fight hard to get the priced reduced to any price it will take to sell, because they know they are about to lose the listing.  So, this agent who took the property knowingly at too high a price may begin to get overly aggressive. They know what the real price is now, but the problem is that many agents and their buyers have rejected it for months, so in order to get them interested, the price will need to get below the fair market value because of the "market-worn stigma."  That might mean a price of $280,000 or so.  That's when this kind of listing agent will start "encouraging offers," from competing agents and brokers often saying something like, "hey make an offer, " I'll try to help you get the seller to see the light."  Now, that's not really working for your client, but they now know the only shot they've got is to get it sold and quick.  If they DO get a lowball offer at this point they tell the poor unsuspecting something like, "Look we've had the property now for 8 months. We took it at YOUR price." Notice how the dialogue went from their initial certainty in pricing, to a "we collaborative" price agreement, to YOUR price mentality. "We tried everything, but the market rejected it.  "It's NOT MY fault.  It's the MARKET.  I think you ought to take this one.  This way you can get on with your life. After all real estate value is based on location, location, location and for some reason while you have a nice house the market just doesn't seem to like this location enough to warrant the price we were asking."

Who loses?

So the seller LOSES in several ways. First, they are likely to have gotten more than they finally settled for in the beginning IF they had priced the property properly.  Second, the equity they have lost is the value of at LEAST an equivalent investment rate of return if they were going to invest the equity in an alternative investment, or in an increasing market, they have lost the inflationary effect on the house they want to buy because THAT property (or similar one available) has likely increased by $40,000 plus or minus in a robust increasing market. 

In the worst case scenario, let's say the seller after 8 months takes -$35,000 less than what they should have received, and the type of property they would have bought (or equity they would have invested in an alternative investment) is another lost -$25,000.  That's a total of -$60,000, most of which should have been in the owner's pocket.  That's what you WON'T hear from the average "let's-take-your-price-and-add-the-commission-agent." They alter the conversation during the process to switch the "blame" early on that it wasn't THEIR idea to overprice the property, it was YOURS. By the time both your desperation and theirs sets in to get it sold, they are counting on YOUR motivation to sell. "Look we're within $20,000 of what that other broker told you...at LEAST we TRIED."  It sounds reasonable doesn't it? But they never complete the conversation about the lost "opportunity cost" of YOUR investment, or the rising cost of the new one. However, they "made the sale." In a declining market the losses are even worse, but that discourse we'll save for another day.

How does that make you feel?  Probably not very good. We don't like it either.  We believe it reflects badly on the profession.  Actually, we wonder if in this scenario it would actually stand the legal test of fiduciary responsibility and client advocacy?  Is it possible that by demonstrating "overpricing losses," that agents could be held liable for the market price erosion of artificially inflating property values to this degree?

AcceptanceGroup.com

Problem With American Business Today

An astute investor client of mine who travels the country in various financial consultant roles was having a discussion with me about American business, the nature of business in general and big business Vs small business. It's a common topic we often discuss. I appreciate his insights into the typical Fortune 1000  clients he works with and he appreciates my small business expertise in retail and residential real estate.

He was explaining to me how large business entities hire smaller vendors and make them wait for months to get paid, so he has learned he has to factor in that costs when he bids for a job. We also discussed the ramification in both of the types of enterprises we're familiar with that "efficiency" today is mostly as euphemism for "cheap-as-you-can" production deliverables, or what we call the "Walmart Theory" of business. Not only how can I sub-price my competitor, but how can I get this product CHEAPER the next time I order it? The stories are many about how Walmart gets a "best price" from a vendor, sucks out all their productive capacity after negotiating as near cost (or below for foolish vendors), then expects a reduced price often the next year for the same product, using their behemoth sales volume to capture market vendors into their "web of no returns," playing one vendor against another.

This negotiating strategy has created the vast Walmart empire we all enjoy. It has probably single-handedly done more to reduce costs, competitiveness and keep inflation at bay than any other retail product merchandiser in the world, with everyone seemingly trying to out-Walmart, Walmart. Few have been able to stand against this retail juggernaut in any industry. Notable exceptions seem to be Target, in a similar though not identical space, and Costco when competing against Walmart's sister-ship Sam's Club, though they are membership services, it shows that Costco has been able to consistently play with a Walmart sponsored entity and prosper. Costco however does not compete in the traditional retail mall space that has made Walmart so predominant in many parts of the world.

There is of course Amazon and eBay who have become huge product competitors in a different way, through online sales and more and more they are competing well with large retail stores in the consumer product space. A recent rumor has it that one large retail chain not mentioned here has discovered their customers are buying larger volumes of off the shelf products they are known for through such outlets as Amazon. It has caused them to rethink their merchandising strategy throughout the enterprise because sales are being affected this way dramatically. So the technology assisted retailers too have their impact and place, but that is a different discussion we'll address at another time.

Small businesses are supposed to loathe the Walmart behemoth when it arrives anywhere within a 30 mile radius of them. Many emotionally give up the ship deciding "it's useless to try," and await their eventual demise. Some are foolish enough to try to out-Walmart Walmart, and they die because most cannot compete with the sheer leverage Walmart has at its disposal for product negotiations and purchases. Some really smart entrepreneurs re-invent themselves often with the aid of technology to compete or play in the "margins" of the 20% of the products that Walmart cannot buy. Marketing guru Seth Godin of "Purple Cow" fame is a disciple for entrepreneurs in this vein. "Find the edges of the market," he says and "serve them."

Service is NOT Serve Us

As successful entrepreneurs in our own right, my wife and I who both run different successful businesses, often try, or at least attempt to seriously consider small business when we make purchases. We are very willing to pay more for a product or service IF there is a real value added consideration for us.

We changed car dealers from searching strictly for price to a very high quality dealership who understood the nature of our businesses and promised us a quality "loaner" vehicle any time one of our vehicles needed to stay in the shop more than a couple of hours. They didn't "rent" us the car, or tell us they "just let the last loaner out," or any of those shenanigans. When our cars went in, we got a car to use, period. We bought a half dozen cars off this dealership until the franchise brand changed through no fault of the dealer. We did not want the new brand, so we reluctantly left the dealership. We have not found quite the same service since in the last decade. My wife purchased a Lexus several years ago and the service has been great because the quality of the car is great. Whatever service that is required is expensive of course, and we are grateful that when the car does need service the dealer literally brings a car to us from miles away, leaves us the car they drive to us, and returns hers the same way. That is quality service on a high quality product, for which she was willing to pay.

As the more frugal of this duopoly however, I chose another more traditional auto dealer with a good reputation that happened to expand his operations substantially when I was about to trade in my Lexus that had become tenuous for me to drive in winter as a rear wheel drive car. While careening down the highway sideways in a snowstorm one day in January 2009, I decided then and there that if I got out of that alive, I would never own another rear wheel drive car again. A few days later I bought a leading brand utility vehicle that suited my needs. the few repairs it required in the past 4 years were relatively routine, except the costs were enormous. Then I realized what the "free coffee, donuts and wireless" were costing me,. while I waited for my "serve us" to be completed. Having a brake repair done cost me $900 and within 6 months I needed the same repair, which I brought to an independent who charged me 50% less for the exact same repair. That annoyed me. The dealer of the car who did the initial repairs also charged double for an oil change, and always seemed to find "something wrong" at every oil change. Since switching repairs to the independent mechanic I have almost no repairs and my oil is changed at half the price. My wife now brings her vehicle there, as does my stepson, my step-daughter and myself. In addition, we have probably sent at least 20 new customers to this independent over the past 3 years, and have been happy to do so.

In the same manner, I needed to get a new prescription for my glasses, and at the insistence of my lovely bride, I went to an Optometrist and Optician that has a couple of offices nearby that one of her girlfriends seemed to like. So last summer I was outfitted with a (wife-chosen) pair of "designer" glasses and paid $700 and change for them. I thought it was a ridiculous, but the bride thought I "looked so good" in them I couldn't resist. They were "guaranteed" for a year, of course. In addition, I purchased an "add-on" product called "Magnetic Sunglasses," that "goes right on your prescription lenses." I asked what she meant by "magnetic," and I got this obtuse explanation about "studs and stubs" and anyway for $67 I said OK. A week later when the package of new glasses and magnetic-polarized sunglasses came in, I went top pick them up and to my annoyance and dismay, the magnetic-sunglasses turned out to be kind of crude looking snap-ons that one can get at most drug stores. I explained this didn't seem like magnetic to me and that I "must have misunderstood." My wife who accompanied me on this pick-up phase of the transaction explained that I "needed something" for the summer and I should "just take them," besides I "looked so good" in my new designer frames and "custom" magnetic-sunglasses.

A few weeks later at a client's property, I somehow misplaced them, never to be found and went limping back to the Optometrist to get another pair, since they were "custom fit" to my "designer glasses." This time I ordered two pair of the $67 magnetic-sunglasses knowing what I was getting, but summer was here and we were spending some weeks at a lakefront property, so I needed sunglasses and felt my options were limited within the timeframe. It required my sending my new prescription designer glasses in to be custom-fitted, so I was another week with my old prescription glasses. This time when the magnetic marvels arrived, one set worked well and the other fell apart in the Optometrist's hand while fitting them to me. When she said she would get them repaired. I said no. I paid for new. I want new. It was another week and I told her I did not want to again be without my new prescription lenses, after all I had one of the magnetic marvels that worked.

Supposedly she sent them in and a week later I got the new magnetic marvel in. The fit was sloppier than the other pair I had but I figured they didn't have my glasses this time and while they were a little ill-fitting they would be OK since I had the other ones that were fine. I only wore the ill-fitting ones occasionally and a few days ago while slipping on the "magnetic" clips, the right lens fell off in my hand. I took them to the Optometrist this morning to see what they would do, since I though they were less than a year old and I had had trouble with this very same set of magnetic marvels that they would repair of get me a new set.

After telling me they didn't sell magnetic lenses for these custom designer glasses and that they must have come from a "third party," I asked her to look up my record, and sure enough they found them and the fact that I had bought 3 pair of the magnetic marvels: the ones I lost and two other pair. After calling her "boss" which sounded a lot like her fiance or spouse on the phone, she told me THOSE didn't have a warranty, and she would try to see if she could get me another pair.

At first I wasn't going to say anything, I still had a good pair, but then since poor customer service is one of my pet peeves in ALL businesses today, I reiterated the retail value and cost I had paid for marginal service to date. I explained that I was fine with it, but didn't understand that I had spent over $700 for one pair of glasses, about 5 times the cost of what I could have gotten from Zenni or $39Glasses.com online, PLUS the cost of 3 pair of "clip-ons" at $67 each that could replace with an actual pair of glasses at these same sources, or any of several others. She apologized and re-iterated that she could see if she could "get them repaired." I declined, because then it dawned on me that most likely the "repaired" ones that fell apart in my hands were not actually sent back to the "lab" after all, and that in fact, they were likely "repaired" right in the Optometrist's office.

Cost of Bad Business and Bad Service

So, what will this annoyance cost me? I'll spend $39 to get a new pair of glasses with new lenses at $39Glasses.com and another $22 to have lenses only put into my "old" existing titanium frames. THEN, I will tell the Optician and Optometrist what I have done, and my wife and I will actually be pro-active in telling our many myriad friends and clients about the GREAT resource we have found online for unbelievably inexpensive glasses online. I could have purchased 10 pair of $59 "progressive" lens glasses: frames, lenses and all for 1/3rd LESS than what I paid for one pair at the local "quality" Optometrist's/Optician's place in our affluent town. I found out about these vendors from a Forbes article, and customer testimony was impressive.

I once was so upset with a computer store where I purchased two laptops because of the $150 rebate on each and was denied the rebate for some foolish reason, in the days when it was a real challenge to get a rebate back from a vendor that it was more false advertising than not. This was a large computer chain store, larger then than now. I went on a personal mission and calculated that I had personally changed the minds of people to buy elsewhere. I took satisfaction in knowing that I cost that chain at LEAST $100,000 in lost sales, then I stopped tracking it. Since I've had computers for about 30 years, I've become the friend to "recommend" hardware and software to, when people who know me purchase products. That was BEFORE Blogs, LinkedIn, Facebook and MySpace.

It annoys me terribly that when a small business claims to offer superior service and products and fails to live up to that standard, or even the innocuous department store standard of box stores as a minimum, I consider it a fraud perpetrated on the public. I believe we have a responsibility to weed out these frauds because it gives the rest of us a bad name by virtue of the category called small business.

I would encourage the public and other small business people to let it be known WIDELY when they receive sub-par products or service from small business. The very WORST excuse I sometimes hear from "quality" pretenders is "well we're just a small business, we can't afford to (pick your excuse) like the big guys." To that I say, "if that is so, then stop pretending you offer quality product OR service." At least with the Walmarts of the world you know what you're getting.

Business Model Failure

Business needs to be accountable. If small business ever hopes to compete with the big guys they need to offer SUPERIOR not INFERIOR services and products to the customers, over that of their big-box counterparts. Small business needs to be VERY careful. SOME big box vendors have had an epiphany.

One of the large home improvement chains in our area has staff that wears the identifying logo wear, so you know who the staff is. I seemed to notice over time that any time I was there, when I was looking for a staff person to help me they would seem to spy me and as I began to open my mouth to ask for assistance, they would disappear down an adjoining aisle rather quickly. At first I thought it was an anomaly but it seemed to happen every time I went to ask someone where things were in their store. There are several in my area and I shop each from time to time. They were all the same.

After one particularly exasperating experience of having several staff dart away from me just as I approached them, I cornered the Service Desk people since they were in a stationary spot, and asked the question: "why does your staff seem to dart away from me every time I'm asking for help?" The initial reaction was interesting. The person smiled at me and said "they must be busy with other customers." I knew better and the smile was telling to me.

After that little trip I went online to the website of this large vendor and in the "Customer Service" section, I explained in detail the problem I had at several of their stores in several states. I addressed the post to the President/CEO, having looked his name up online.

I received no response, and I certainly do not take credit for anything that occurred thereafter, but over the last two years I have noticed a remarkable change in this store's customer service. I can no longer go in this place without being asked several times; "can I help you sir? Did you find what you need?"

My guess is I was not the only customer complaining, and that's what it takes to improve service and product quality.

For small business this should be a NO-BRAINER. Small business should be rolling out the red carpet every time a customer walks through the door. Staff should be solicitous without being overbearing; they should be helpful; well trained and consultative. If the staff does not have the answer required, they should get it QUICKLY. Staff should be rewarded for the quality of service they provide their customers and be encouraged to solicit existing customers to come back with rewards, financial incentives and incentives to bring in new customers on their own.

What if service clerk brought in 10 new customers in a week because the offered their church group an extra 10% discount on anything purchased that month, and the store would track the purchase affiliation. Wouldn't that employee deserve maybe a 50% increase in their paycheck that month? What if they had the option of "donating" their discount to their church or other group affiliation? What would that be worth to a business?

The big box guys are figuring out they can actually compete with extra service and higher quality for a little higher premium over their existing products and services. Meanwhile, many small businesses haven't figured it out that they are beginning to lose even at the "margins" of their categories because they are refusing to fill the void by act of commission or omission. That my friends is unforgivable! Why? Because it will put you out of business.

Consider What Salesforce Has to Say 




Source: http://www.desk.com/customer-service/bad-customer-service

US Vs World Economy
A friend sent me a link which is the "Income Inequality" assertion in a YouTube video. This is a "left" assertion that has a lot of traction in the country. I of course searched for the contrarian view from the American Enterprise Institute, where I'm headed with my business partner in two weeks to interview two key players, one who worked for the US Treasury and another who was a Senior VP with Fannie Mae, to gain deeper insight into the Great Housing Recession for a book we are co-authoring. Both links are below at the end of the article.

Since real estate makes up about 1/3rd of the US economy in the aggregate, with allied goods and services, we have continually been required to explore economic ramifications beyond just a strict real estate perspective. Following are my own views and NOT that necessarily of my co-author for this project. Some of this is anecdotal and some is based on facts as I view them and my own experience as a businessman of nearly 40 years.

America the Beautiful
The American economy has undergone vast changes we could not have foreseen even 30 years ago. Beginning in the late 70's and early 80's modern computers that were accessible by the average person began to appear in earnest. Technology has exploded on a vast scale, unseen since humankind first began to walk the planet. This has created a vast knowledge network that connects the planet, certainly some much better than others but even poor 3rd world countries now have cell phone coverage, which are mini computers, and access to the 3rd world is growing rapidly. This access has created tremendous productivity gains.

Historically huge productivity gains have increased consumption of goods and services and lowered their price on a per unit cost.

After WWII the US was pretty much alone in having its shores and infrastructure relatively unscathed, where Europe, Britain and Russia were devastated landscapes filled with rubble. Those few countries that were unscathed, like Spain, which had earlier had its own civil war and Switzerland had few resources to resurrect Europe. Likewise the powerhouse of the far east, Japan had been equally devastated. China was in the middle of a civil war between Mao Tse Tung and western backed Chiang Kai Shek. Dedicated communist Mao won. Stalin retained power in Russia and kept the country under another communist iron fist.

During this period only the US had the resources to help resurrect Europe through the Marshall Plan, fought yet another war in Korea containing Chinese and Russian mischief in the rest of Asia. Japan took the next 30 - 40 years to become an economic powerhouse. Notably it was under a Republic form of government. Russia and its forcefully allied Eastern European nations remained under strong-armed socialist/communist rule until 1991, when it all essentially broke down through bankruptcy really. They turned to an authoritarian form of crony-capitalism. It nearly failed until strongman Putin righted the ship, with proxy Medvedyev as a placeholder for Putin to return. Russia under its form of capitalism and the leadership of Putin has stabilized itself, and is just now reasserting itself seriously on the world stage in a less than a 15 year period. China's unique brand of authoritarian capitalism nominally refers to itself as a socialist state, but in fact is another hard line authoritarian capitalist state with a communist autocracy. Japan, with its limited resources has maintained its status as one of the top 3 economies for decades under its Republic form of government.

Not So Free Trade Begins
Over the years the US has granted various forms of "favored nation" status for political and/or trading advantage. Beginning with President George H.W. Bush political dialogue and culminating with the full force of treaty under President Clinton, the US really opened its world-trade barriers wholesale to the rest of the world for the most part. Though Ross Perot tried to warn America that this would hurt Americans on the job front, the country fell for the "feel good" new-world dialogue of the UN and candidates Bush/Clinton. This strategy has been hugely successful for the world, especially China, India, the Asian "tigers," and now major South American economies and Europe...especially for the Eastern European USSR satellite nations, because of their low labor costs and technology adoption.

Many commoditized goods and services that can be performed by humans or computers are now done by the lowest "price point," which is foreign labor. Today, many "American" companies have vast production and service resources in less expensive places to do business. This has resulted in continued low prices that have helped to contain inflation. I recently purchased a jacket that cost me less than I would have paid in the 1970s, when it would have likely been made here. Not all products are the same, cars for instance, but cars now routinely run 150,000 miles or more, whereas in the 1970s and much of 80s after 50,000 miles you needed to be either a mechanic or trade your vehicle. Gas mileage was about 10 to 12 miles a gallon, and today is nearly 4 times that much with less emissions. These things occurred also because of technological advances, government policy, and industry collaboration, the latter helped along by the Japanese who built more efficient and superior quality cars. That perception remains today. Like it or not, competition allows for better and cheaper products and services.

Had we as a country retained high tariffs and protected our markets, our costs for goods and services would be much higher and of less quality, as the American auto industry demonstrated when they had the market to themselves with no real competition. American auto manufacturers used to target a 5% "lemon" rate where the Japanese targeted a 0% rate for "lemons." The price we pay for cheaper goods and services is exported manufacture, partial manufacture and services from abroad at the cheapest price.

Enacting tariffs, abrogating our free-trade treaties could move manufacturing back to the mother country but at a huge price...huge price increases to accommodate current American wages. Doubling American wages would likely quadruple prices for many goods and services very quickly, meaning less consumption and more unemployment. This scenario is highly unlikely unless there is huge economic or political upheaval in the world.

Capital now moves freely around the world, and seeks its most profitable place. Cheap labor, goods and services is where capital flows. The US is already the 2nd highest corporately taxed country in the world. Raising the rates will make us less competitive. Companies will just register in "less taxing" places. The shareholders want returns. Our own 401k, pensions, insurance plans, and IRA fund managers are charged with getting US, you and I, higher returns. If they do not get high returns compared to others, then we as individual investors complain to our fund managers to get us competitive to the returns that others are receiving. If you have a pension, and IRA or insurance annuity you are pressuring your fund managers directly or indirectly through your employers to get better returns.

That is how merciless the free market and free trade is. The alternative is old China, USSR, Cuba, or Europe? The old China and USSR are gone, having moved toward their own forms of capitalism. If their proletarian revolutions would have worked, their people wouldn't have been starving, seeking our wheat for survival during the height of the Cold War. Now, they do not seek food aid. They buy it, or raise it. Under the socialist collective system they couldn't grow enough food because there was no incentive to excel. Therefore, workers in all categories did the LEAST amount of work because it did not pay to work harder when your neighbor in the job was not working very hard. This is the essential complaint of conservatives against the "welfare" state. When half of your work efforts produce for those who won't work, there is no incentive for those who do work to excel. Eventually they stop working or reduce production because it does not profit them to do otherwise. Read "Atlas Shrugged," or see the movie.

There is some sense of inherent "goodness" in many people to "help" those less fortunate, but when the less fortunate are not really handicapped or incapacitated in some way, and the disincentive of work itself becomes less than what the "state" will pay to sustain you, the system begins to break down. We are already there in my opinion.

Very Taxing
Let's talk taxes. If you taxed ALL corporations 100% (no profits), it would only account for about our ANNUAL deficit. This year's annual deficit will amount to about $800 billion, which we have to borrow. Total corporate earnings were about that last year. How long would the companies left remain in America if we taxed them 100%? Not long. France discovered that by taxing incomes over $1,000,000 at 75%. Within a year they had a huge exodus on their hands, and with their flight of millionaires, the capital and jobs left with it. Already local elections are bringing the right back into power in France because the people have realized how disastrous this policy is in the new free-trade world.

Yes, countries have figured out taxes too. American millionaires are beginning to renounce their citizenship and move to more tax-friendly havens. In 2012, Eduardo Saverin, co-founder of Facebook renounced his American citizenship just before Facebook's IPO where he netted almost $4 billion, he was inspired to do so because of the hundreds of millions he saved in taxes. Singapore welcomed him with open arms. It is interesting to note that Singapore is rated #2, just behind Hong Kong #1 (now part of China), while the US is ranked #10 by the Cato Institute for business freedom. This is a very telling and compelling illustration of the new world economy, and is being enacted in less notable, but nonetheless hugely impactful scenario, every day.

Smart millionaires are realizing there is tremendous pressure to increase taxes to alleviate the addiction we have to deficit spending, and they fear, rightly so, government actually taking money from bank accounts at some point. It has happened in Poland and Cyprus and may soon happen more in Europe. We may have a severe financial "cold," but much of Europe has pneumonia. It may be fatal to some. We are not even talking about the $17 trillion, soon to be $20 trillion dollar deficit, and $85 trillion in unfunded liabilities yet facing the country over the next 20 years.

China and other relatively healthy economies are pushing for a new world currency to replace the dollar, which would throw our economy into a tailspin. A doubling of interest rates to keep financing our debt would also double our annual deficit. We would be forced to make even more drastic cuts than we should be making now to cover the 1/3rd of our budget we borrow each year. We should actually be living on 2/3rds of what we're now spending. Imagine the screaming we would hear if we cut our budget 1/3rd across the board as we SHOULD be doing.

Let's assume we taxed our corporations only at 40% the highest of the major economies, we're now at 39%. State taxes are on top of that. That would bring in about $80 billion, about 10% of our annual deficit, not much. Plus it would make us that much less competitive in the world, so for the companies we might drive away, would it be worth it? Maybe, but it's still a drop in the bucket.

What They Are NOT Telling You
There's another phenomena we will be facing soon. Though there had been some tampering with the CPI (Consumer Price Index) over the years, beginning in 1994 it got pretty serious when President Clinton and then Speaker Gingrich cut a deal to exclude certain items from the CPI, which is the basis for measuring inflation. In addition they "weighted" items differently. The goal was to artificially reduce government reported inflation. In this manner Speaker Gingrich could obtain long-term entitlement cuts, while President Clinton could maintain his budgetary spending at the time. Now, nearly 20 years later we are beginning to feel the effects of this "smoke and mirrors" sleight of hand.

Reported government inflation is less than 2%, but with transportation costs excluded from the theoretical "basket of goods" that the CPI is supposedly based on, and "inconvenient" weighted items "adjusted" favorably for the government's CPI reporting, we are in the dilemma that we are actually experiencing more like 7% inflation in reality, yet our social security, entitlements and wages are being indexed at 2%. This year social security recipients will receive 1.5% increase, yet experience about a 6.5% "real world" inflation rate. Don't think so? Check out your grocery bill compared to 4 or 5 years ago. Do you actually think it's only gone up 2% a year? There is a place on the internet that actually tracks this, called shadowstats.com. It has a wealth of information. What does this mean? It means that while giving 2% raises and benefit increases while the real cost is 7% for inflation, means that purchasing power is DECLINING by 5% a year, or 50% in 10 years. That's what the average person does not realize but "feels" something is wrong. Purchasing power is eroding and consumers are beginning to feel its effect in earnest, and it will get worse. THAT is the secret to how the government has intended it for 20 years to address social security and benefit inflation: don't pay the real rate of inflation, but pay based on an artificially low reported "official" rate. This policy has been in effect for both democrats and republicans for 20 years.

The REAL Reality Show
So, why is this happening? This is how poor our political system now is under perennially elected politicians who care more about retaining the perks and power of their political careers than the good of the country. Every election, the rhetoric sounds laudable and plausible, yet nothing changes. The game is rigged. Each side knows in any given election the incumbent has the advantage of being re-elected. Almost never does a majority exceed 60% for the winners compared to 40% for the losers in either the house or the senate, and usually is much closer.

After election, the Kakbuki dance begins. Obfuscation, frothy rhetoric for the voters and endless blame of the other side to cover up your own shortcomings and failure to execute continues. Endless kicking the can down the road until the NEXT election, hoping for an incremental shift to your side to actually do something that is "safe" so they can retain their spot in congress.

In this environment there have been very few who actually made an honest attempt to address the big issues, but usually they have paid through failed re-elections or close elections, because we ourselves do not WANT to address the serious issues. WE don't want to take the pain we need to face. We want someone else to. The typical scapegoats are the "fat cats" and "corporations." We don't want to admit that we ourselves are the enemy. We want. We want. We want, yet we want someone ELSE to pay. Like I stated earlier, taxing corporations at 100% would ONLY take care of one year's deficit and result in the migration out of the corporations to sunnier climes for their capital.

We cannot afford all the "feel good" things we would like. We haven't been able to afford them for some time but have continued to spend and increase spending on borrowed money as if we could in a world that is imminently more competitive than we had even 20 years ago. Not only is labor, goods and services competitive, but capital itself is competitive. We cannot afford endless undocumented aliens who inordinately use sparse resources that will ultimately become more and more apparent as our seniors retire over the next 20 years...all 65 million of them. Spending these resources on an illegal immigrant population in the tens of millions will mean less and less for retired seniors who paid their taxes, worked hard and expected certain minimal services and care that they will be receiving in eroded inflationary dollars. Continuing along this path will mean less and less for our own citizens.

A recent adjudication by the courts has made the debts of a retired parent's care the "filial responsibility" of the children, and forced the children to pay the bill for their parents because "they had the means to pay." This is not an entirely new precedent, but adding those bills along with the $100 trillion indebtedness we are leaving them and our grandchildren will be too much for them to pay, when by 2035 there will only be 3 workers for every retiree to pay for social security and other entitlements. This is unrealistic at best and catastrophic at worst. There is no easy way out!

Expatriation Coming Soon
Another issue we will begin to face more and more is the actual migration of citizens to other less costly countries. Latin America, low cost Asian countries, Central and South American countries are all loosening their residency and citizenship requirements, INCLUDING reduced taxes to attract Americans with reduced incomes in their own country, but with sufficient income in their expatriate country to add to that country's economic health. This of course will be a further burden on America if this becomes a strong movement. While $15,000 in social security may not go far in America, a husband and wife with a $30,000 combined income can live quite well in countries like Ecuador, Panama or the Phillipines. If this phenomenon is multiplied by hundreds of thousands, then that will be that much less consumption in America that we can ill afford at that time, including lost tax revenues at least to the states they otherwise would have retired to.

Most of our national politicians know the real issues. They don't speak frankly with us because we don't want to hear it. When we hear the truth, it results in anger and blame of everyone but ourselves. What we need is an HONEST assessment and dialogue for the sake of the entire country. Neither side has been willing to do this honestly, because when they have, the opposing side immediately takes advantage with the "rhetoric of opportunity" telling us what we want to hear rather than the reality, so no one levels with us, except for the occasional "rebel," which the "status quo" quickly relegates to the fringes in order to disempower the "bad news."

Plea For Sanity
This is the current reality. Can it be changed? I'm not sure it can be changed because these liabilities are so huge. If it was just the upcoming $20 trillion deficit, maybe, but with $85 trillion in unfunded liabilities, probably not likely without hyperinflation. Hyperinflation might wipe out a good portion of the debt but would also cause wholesale bankruptcy, much worse than the Great Depression of the 1930s because today most of us do not live in such a way that we could survive as subsistence-level farmers. We might think so, but the harsh reality would be much different. Yet, I am not one to give up, no matter the odds. I believe a strong dose of honest national conversation about the reality of our problems, an honest dialogue with our creditors, a shared burden that's fair with a flat tax system would go a long way to resolving these serious problems.

We've still got a chance. There's always a chance, but we need new leadership not afraid to face the issues, and I fear the only way this will occur is to have a constitutional convention to replace the entire congress and hold new elections with term limits for all elected with real penalties for politicians that fraudulently tell us one thing and do another. We should also limit congress' benefits to the same as it is in the public sector average, and tie pay to a multiple of the minimum wage. This would eliminate career politicians and put them on notice that we are serious about our country, our freedom and our responsibility. If we fail, we will fail our country and we will lose what freedoms we have left because in order to retain power when we are finally faced with forcible cuts, the government will of necessity have to become more ruthless to retain its power.


The "Income Inequality Assertion"

http://www.youtube.com/watch?v=QPKKQnijnsM,

The "Income Parity Assertion"

http://www.aei-ideas.org/2011/10/5-reasons-why-income-inequality-is-a-myth-and-occupy-wall-street-is-wrong/Wealth Inequality in America




http://acceptancegroup.blogspot.com

Where have all the foreclosures gone?

There is a LOT of conflicting information in the market about foreclosures. Some of the latest you may have seen:

• Forelcosures up
• Foreclosures down
• Prices improve
• Prices decline
• One in mortgages "under water"
• 30% of all sales are "distressed sales"
• Case-Shiller says we may be headed to housing double-dip

What's up with this? The truth is...no one knows for sure. Between the prognosticator views, poor servicer performance, media hunger for 24 x 7 headlines, and political interests swirling around an upcoming important Presidential election, there are many varied interests trying to "spin" results in to their own perspective.

REALTORS as an organization attempts to spin the positive whenever they can to keep up the spirits of the market and their individual agent-broker constituency. The reverse side of that are the various investment, political and media interests that need to slant a story to further their ends.

Huh? If you sell stocks, bonds, commodities or annuities you're not likely to promote real estate as the right thing to buy because it is at or near the bottom of its cycle. Imagine a stockbroker's customer saying, "gee I think I'll move $500,000 or a $1,000,000 or so out of the bond portfolio and pick up some real estate assets. I think it just might be the right time to buy." What do you think that stockbroker is more likely to say: "great, I agree, I think we ought to rebalance your portfolio in that sector," or are they more likely to say: "are you nuts? The real estate market is dead and won't come back for 20 years, if that!" The stockbroker may or may not believe their conclusion, but if the investor asked: "do you have any real estate investments, like REITS that might be a a place to position ourselves right now? Then, the investor may get a very different answer. Probably something more like: "yeah, we may have a couple of funds that may interest you..." The same is true of whichever interest you're promoting, whether it is political, financial or in your self-interest point of view.

You might be interested to know that, as always, all real estate is "local." There are hotspots in the country where housing prices are actually increasing, and many areas where prices are still declining on the whole, but even in these areas, there are sometimes bright spots - certain neighborhoods, locales that may have reasons for their value increase in an otherwise declining market. You can find these doing a websearch on any of the major search engines.

From our vantage point, with various connections to major foreclosure services around the country, we are finding that the banks themselves have been reluctant to "flood" the market with more and more foreclosure inventory, instead, opting to slowly let out as few properties as their balance sheet will allow. How is that possible? Well, if you could borrow money from the US Treasury in the 1/2% range to bolster your balance sheet, instead of writing off -$100,000 on a $300,000 mortgage, what would you do? You might do what some of them are doing - borrowing hundreds of millions from the US Treasury and loaning it back to the "Fed" by buying bonds at about 3% yield with the money you just borrowed.

Think about that. If you got credit to buy a cup for 50 cents from a wholesaler, then sold it for $3.00, that would be a 600% markup - on BORROWED money. Hmmmm. Isn't that what large banks are doing? Borrowing money a 1/2% and "selling" it back to the government through investing in government bonds at 3%? That's a pretty good, so far, fail proof business, BUT, it's not for you. You need to be chartered and licensed bank entity to get away with that. It sure beats taking a 1/3rd loss on ONE mortgage, then trying to make up the loss making $20,000 car loans at 4% interest in this market. You would have to make 125 auto loans of $20,000 each at 4% interest to make up for just ONE loss of $100,000 on ONE house. That's a pretty big problem when there are nearly 2,000,000 houses in some stage of foreclosure, and another estimated 3,000,000 or so houses "under water" on their mortgages - where some portion of those are very likely to be foreclosed on.

This example is not intended to be a moral judgment, it is an example to help you see WHY there aren't as many foreclosures actually on the market for sale, as there otherwise might be. This is an ENORMOUS problem, and something that likely dwarfs the debt levels you have heard about to date. In  the end, we the people will wind up feeling the brunt and the burden of this debt as it comes home to roost over the years through further government indebtedness - that's what "Quantitative Easing" is - it's the government buying its own debt. Lots of that debt has been accumulating through Fannie Mae's and Freddie Mac's mortgage insurance losses in the billions and billions. These losses are very likely to continue well into the future, either as debt assigned to these entities, or assigned to other entities in the "money shuffle" that has become our current national policy.

That's the bad news. The good news is, we WILL get through this - eventually, though it ill be tough and there will continue to be more and more losses for the false economy we supported our collective selves with for the past dozen years or so through borrowing to pay for current expenses. Housing is so dramatically visible because that is the asset that so many people used as their private piggy bank to finance a lifestyle they might not otherwise have deserved had the "loose money" lending practices of large lenders with government acquiescence had not prevailed for a good 10 year period at least from 1995 through 2005. This was a time of national speculation in a consumptive economy. Current statistics tell us that we are now an economy that is fueled 70% by consumption. If we don't buy. We starve.

Remember, we have to live somewhere. Our country is still blessed with vast amounts of resources, so compared to much of the rest of the world we are far better off. The top 5 economies ni the world are:

• United States about $15 Trillion GDP
• China - about $6 trillion GDP
• Japan - about $5 trillion GDP
• Germany - about $3 trillion GDP
• France - about $3 trillion

Thee US still has about the same GDP as the next 4 major economies COMBINED. If we didn't buy goods and services from them, how well do you think those economies would stand up? All of these economies manufacture things. To manufacture things, you need natural resources. Of the economies above, who do you think has the most natural resources. The US does, of course, by far. So, IF we ever had to bring more of our manufacturing back to our shores, we have a good chance to do so. We might have to pay more for some products, but we have that option. The other 4 major economies right behind us have far fewer options that we do to steer our economies. We also still have an underlying "can do" spirit that still prevails in time of crisis. We can, and we will persevere through this current economic crisis and those that will come in future generations. Today fewer and fewer people tend to be studied in American History. Many schools have deemed American History as less relevant than say more "modern" subjects like: technology. That's too bad. If they only studied a little of our history they would see how much we have overcome over the years. We have had failures, collective bad judgment and yes - catastrophic economic crises - with no collective government help available, or even the ability to communicate crisis in a timely manner. We have also had extraordinary successes, and we are the examples today.

Our lifestyle is second to none in the world. We actually live a very privileged life compared to most of the rest of the world's inhabitants. No country contributes more to the world good and the world's safety on the whole. Yes, we make mistakes. We have made mistakes, and we will continue to do so over time. Serious comparative analysis however over time will demonstrate that we have no peer for supporting the general well being of human kind, nor has there ever been another of our stature.

What does this have to do with real estate? Actually, more than you think. Since the home is still the largest investment most of us will make, it commands a very large part of our individually family's "economy," whether you rent or own, for many people it still takes about 30% of your gross family income for housing. Should you buy now? Sure - but you need competent advice. I'm the first to say that not all real estate agents are competent, but the same is true in any other profession. Not all teachers, lawyers or doctors are competent either. Shop around for the right real estate advisor.

Real estate is like any other service. You have to do your own due diligence. what amazes me after 30 years in the business is how LITTLE thought most sellers and buyers give to choosing their real estate professional. When you're buying a toaster for $40, you probably shop several stores and check online for the best buy; but when shopping real estate agents any people just choose their agent because they came "recommended  to me..." The problem with that is that the people doing the recommending are usually well-intentioned but often they don't know the intricacies of real estate themselves.

Let me give you an example. I heard of someone who listed their property with an out-of-town agent, because "we used them in the past." That makes sense, except for the following. The price determined by the agent was deemed too low by the seller, so the agent listed the property at the price the seller requested, likely to "test" the market. Within a few days several offers came in - in a DOWN market - and the property sold for ABOVE the list price, that the agent involved had indicated should have been even lower. I actually heard there were several offers on the property.

Question. Was the property listed at the right price? Maybe - but it is certainly suspect, isn't it? The ironic thing is I happened to be at an event when one of the parties involved was voicing their "good fortune." I smiled and nodded my assent, but after hearing the details, I thought, "wow - they  probably paid somewhere in the $40k range for that service and advice?" The "take-aways" for me were:

• Why didn't that seller get more than one opinion of value - especially from more local agents?
• Wouldn't you question the value of selling above list price in a few days?
• How much more should I have gotten?
• If there were multiple offers, why not a sealed bid offer?
• How many listings sold, did THAT AGENT have in THAT community?

Something to think about

For years I have been promoting "fee for service" instead of "contingent commissions" for buying and selling real estate. This agent got paid more than a brain surgeon for what I deem to be somewhat suspect efforts on behalf of their client. $150 an hour for 30 hours (probably ore than was actually put into the process) of effort would have only cost $4,500. The DIFFERENCE is that the agent would have been paid whether the property sold or not. However, because these sellers (like most) don't want to take the "risk" of paying the costs of a property that DIDN'T sell, THEY paid somewhere in the $40,000 range. THAT is the cost of contingent commissions.

In all candor the majority of sales are co-brokered. Not the same agent sells the home that lists the home, so it is likely the selling agent here will receive about $20,000, or so, and the listing agent the same. Here't the kicker. the buyer THINKS it costs them "nothing" to buy. Buyers don't USUALLY pay a real estate agent for the services they render. Instead they expect the buyer's agent to get paid through the "splitting" of the commission - which was negotiated by the listing agent. So, what's missing in this equation is that EVEN if the seller determined it was a good deal to swap $4,500 for their $20,000 "side" of the commission, the selling agent would have to convince the buyer to pay a likely similar compensatory amount. Imagine telling a buyer, "well if you buy this house, MY fee is $20,000." They would "run" right? But, in fact they ARE paying it, because they are paying $20,000 MORE for the house than they would HAVE to otherwise. Assume the buyer's agent would put in exactly the same time as the example above: 30 hours at $150 an hour, or $4,500 worth of service. That would mean if the buyer would just pay $4,500, they would conceivably save $15,500 by paying that much less for the same house.

Analyzing the whole thing, paying the listing agent $4,500 and the selling agent $4,500 for a total of $9,000 , or a total of $31,000 difference for the cost of selling and buying the house. Another way to look at it is that the seller could negotiate some portion of that $31,000 to THEIR benefit, and likewise a similar benefit for the buyer in savings. Assuming the same benefit to each side would mean the seller would put $15,500 MORE in their pocket and the BUYER would buy $15,500 cheaper. THAT's something you don;t hear from your average real estate agent, is it? The other issue for both sides is; what if the agent spends 30 hours and the house DOESN'T sell, or the buyer DOESN'T buy. That is a problem isn't it? You see, the buyer or seller doesn't want to have to pay for these services if they don't consummate a sale - EVEN if it costs them FOUR TIMES as much on average to acquire or sell a house.

Right now the market absorption rate in MA for single family homes is 11.8 months of inventory. Maybe it's time for buyers and sellers to re-think where they are allocating their dollars in the purchase and sale of their home. Retinking the way they pay for the services rendered - because they do anyway, through the commission, might get both buyers and sellers to take more responsibility for the purchase and sale of their home. Sellers would WANT to be more involved because they really would want to price their home right to begin with, since they would not want to "waste" time marketing at unrealistic prices. They only THINK they are not paying that now, but in fact they are because the commission needs to be higher to take into account the "risk" factor of time in the market. Over-pricing is the primary factor in that risk equation.

Buyers too would want to be "ready to go." They wouldn't be "tire-kickers," at $150 an hour, BUT they would be saving $15,500 (in our example) on their purchase. You see buyers too are part of the "risk+time" equation their agent puts into the transaction that they is "free." It's not, when you're paying $15,500 more than you should have to in our example.

So, the next time you speak with the average real estate agent try telling them you would like to hire them by the hour NOT by commission and see what happens. Probably their first response will be "we don't do that. That's not our company's policy....."

Alas, in an industry that should really be at the forefront of this, they are sure s-l-o-w to change, after all, real estate agents have pretty much been paid commissions essentially the same way for the past 250 years - though "splitting of commissions," is a newer phenomena that is more accepted in general, I cannot believe that enterprising Colonials as agents, didn't compensate more than one party in some real estate sales to complete the sale.

Things need to change. In fact, the rental market may be leading the way in some markets. In Boston it is VERY common for the tenant of a lease property to pay the marketing fee. My son recently paid $4,500 for his. It's the same in New York City and many major cities around the country. the "listing agent" of most of these rentals also gets a fee from the landlord in most cases.

You see? There really is no "free lunch."

Something Wicked This Way Comes

Something Wicked This Way Comes

Sometimes I think the men and women we elect don't think anything they do when they enact new policies, guidelines for the housing industry. For every "give away" they don't realize there is at least an equal "take away."

Think about all the declared "moratoria" that lenders have been coerced into in order to get bailout funds - whether you agree with the latter or not - another topic entirely, there is a whole lot wrong with stacking up inventory in a declining market. Yes, it's still declining in most areas of the country, albeit slower, but still declining.

What do you think is going to happen when the gates to these backlogged "assets" begin to flow into the market in earnest? Do they think foreclosures are going to slow down in an economy that will hit 11% by mid-2010?

In the end, the money lenders - you know, the "bad guys," like your pension fund, IRA money, 401k funds, and  don't forget the Chinese who are sitting on $800 BILLION in cash, will actually want their money. They'll need it to pay out those 8% yields their actuaries and their customers have been anticipating all these years. The baby-boomers are coming - in earnest. They started retiring in 2008, and it's going to become a flood in the very near future. They'll want their retirement money, their Medicaid and Social Security, and they'll get it. Why? Because they will be one of the largest voting blocks in the country. Baby-boomers are 1/3 larger in numbers than the generation that replaces them. You don't think they are going to vote out their own welfare do you?

Now there's a dilemma. The way this government has been spending our grandchildren's future, there's going to be a "reality check" in the very near future with what we have available for income and what the expenditure side will be. So, all these promises of salvation for homeowners and every other voting block in the country is going to come to an abrupt halt in the not too distant future. My guess is just about election time 2010 the bloom will be off the roses.

What does that mean? The reality is that the HAMP program and their ilk are counting as a successful mortgage "save" if the defaulted homeowner makes ONE payment. Bank of America's internal statistics I'm told are that 50% of this type of "workout" defaulted homeowner defaults again within 6 months, and 70% default within a year.

So, all that cost, lost opportunity costs of sale of the asset in a higher market than what it will sell in again, when prices continue to decline, only adding to the deficit ultimately. Guess who pays? It's either the investors are going to take the hit, or the taxpayer pays. How long do you think it will take the Chinese to pull the plug on buying US Bonds if they think the Treasury is going to stick them with losses? 10 seconds? Maybe, but that might be stretching it on the long side a little. That means the tax payers will foot the bill yet again. So, not only do we get to pay for the incompetence of irresponsible homeowner borrowers who used their homes as "piggy banks" to finance excess, and their partners in crime - greedy and unscrupulous lenders who knew better; we'll get to pay even more for the politicians who are trying to make "points" to get re-elected, again and again - on your nickel.

When it doesn't "work out" yet again, these very same politicians who helped fuel the mess in the first place by getting FNMA to "relax the rules" to promote "homeownership," they'll be the first ones to claim: "well pointing fingers isn't a solution, I'm committed to solving...[pick the lie - the dilemma they created].

The only answer of course is to throw them out, but that is unlikely to happen on a wholesale basis since it hasn't yet.

So, what does this have to do with your business? Get ready. we're in this for the l-o-n-g haul. This is not going to cure itself quickly. My best guesstimate now is that we will still see abnormal foreclosure levels for the next 10 years between  residential and commercial real estate. 

Let's leave the current housing crisis dilemma just a moment, and project forward just a little. We all know there's a big commercial meltdown coming. There is absolutely NO political sympathy for "business." The commercial  sector is going to be on its own. That's why it will recover faster than the residential sector, but the cost will be  huge.

Another thing you might not have thought about. Who is going to buy all those McMansions of the late 90's and go-go 2000's - until he "great fall" of 2007? With the most likely candidates being the next generation that is 1/3rd smaller than their baby-boomer parents, do you think that bodes well or ill for McMansion pricing and future construction? You guessed it - not very well. That's why I believe this "crisis" is going to be with us longer than anyone cares to admit right now. Don't get me wrong. Houses sell in any market. In some cities in the US, there are whole blocks of inner city housing going for "peanuts," and if you're the broker, you're still selling them.

Chris Michaud

Acceptance Group

www.acceptancegroup.com

Time to Buy is NOW!

Don't get penny wise and pound foolish! This is one of the best times to buy real estate. Remember "buy low, sell high." It's NOT "buy high and sell low." Yeah, I know too many of you got caught in the "fever" of 2000 through 2005. Remember multiple offers on nearly every property? But it was tough to get listings to sell.

Now, there is a lot of over-priced inventory and few buyers. Those buyers out there are extremely cautious, often buying "down" from their prior expectation level. Some sellers WANT to sell but they are "short," based on what they owe Vs the current value. Now you know what a "short sale" is: "too much month at the end of the money."

Would you believe me if I told you we had 27 offers on one property the other day, and it went under agreement for 30%+ OVER list price? How about one the week before at 11% over list price?

It's all in the strategy. We've developed a market strategy unlike anything I've seen to date, though it has elements of several, and taps into some elements of human behavior models. We're still working and enhancing our model, but it seems to be working well at this time. Not always, but fairly often.

What does that have to do with buying now? Because most sellers and agents don't think like we do. Lucky for you.

Most agents are glum and down-in-the-dumps, which they reflect to their sellers, who in turn are glum. No wonder they can't sell anything at any price. For you though, there is a great opportunity. As in martial arts, use their strength against them. If they're glum, help them out. Save them - make a low offer, and it's because of the "market."

Smart money says, stay in the lower multiple of income to price. I like less than 4 times median income when I'm property shopping. Then you can rent the property until the market changes. Yes you can "flip it" too even in this market. But you can't be "glum" like the rest of the market. You have to be upbeat, be knowledgeable and know your value. Don't believe the "Glumlords" they don't know yet.

After going through 3 complete downturn cycles, we believe we know what to expect. There is no exact timing of the market. By the way, this is a good time to buy stocks too. Everyone is so concerned about the American economy. We're supposed to be headed for a tailspin. We've heard all this before. If you think we're headed for a tailspin, then watch very carefully what the rest of the world is doing. They are VERY worried, since we still consume about one quarter of the worlds annual productive capacity.

It will all work out. Likely sooner rather than later. Watch - you'll see, but buying would be better, then you won't have to say: "if I'd only bought when...."

Chris Michaud
chris@acceptancegroup.com
www.acceptancegroup.com