At a recent meeting of the National Association of Realtors, Shaun Donovan, Secretary of Housing and Urban Development, announced a plan which would allow homebuyers to access the $8000 Home Buyers tax credit for use as a downpayment. 

Under the new program, FHA-approved lenders, and HUD-approved non-profits will issue a short term bridge loan to First Time Home Buyers to use for their downpayment.  The loan would then be repaid when the buyers get their tax credit in the next year. 

More details may be found at the National Association of Realtors website:  http://www.realtor.org/press_room/news_releases/2009/05/re_summit

From time to time, I will run across folks driving through a neighborhood, stopping at homes for sale, and pulling flyers from the boxes.  Of course I stop to chat with these folks, and get around to asking them if they are working with a Buyers Agent.  Most of the time they say no.  So as the diligent broker I am, I humbly offer my services.  The usual response is “No thanks. We are calling the agents who are listing the homes.”  They go on to explain that they will be able to get a lower price this way, since the broker will be getting a smaller commission by double-ending the deal.  And they don’t want to be tied down to a single broker. 

I understand this logic.  Everyone wants to save money.  No one wants to limit their options.  But here are a few things to remember: 

• A Listing Agent is obligated by contract to represent the Sellers’ best interest.
• Any savings will probably go to the Seller, as the Listing Agreement is between the Seller and the Listing Agent. 

In Colorado, and many other states, a buyer can engage an agent to represent their interests. 

• The Exclusive Buyers Agency agreement allows the home buyer, to receive the same kind of loyalty that home sellers typically enjoy.
• This means the agent’s loyalty and fiduciary duty is to the buyer, through the entire home buying process. 
• These duties are spelled out in detail in the Buyers Agency Agreement.

So if you, or anyone you know are considering a home purchase, here are some points to consider regarding Exclusive Buyers Agency versus working with a listing agent:  

• Will the listing agent point out all the negative aspects of the property?
• Will the listing agent provide information on comparable sales and help you to formulate an offering price based on current market conditions?
• Will the listing agent show you all the homes on the market that meet your needs?
• Will the listing agent keep your confidential information confidential?
• Will the listing agent give you his/her undivided loyalty?
• Will the listing agent try change your relationship to another form of agency with a reduced level of loyalty and service?
• Will the listing agent work solely on your behalf and represent your best interests in all aspects of the transaction?
• Will the listing agent work to get the lowest possible price and the best terms for you, the Buyer, or are they working for the Seller?

Finally, I always offer my Buyer clients an Easy Out clause.  Either party can terminate the Buyers Agency Agreement at any time with only 24 hours written notice.  No Hassle.

So if you, or anyone you know, is considering a purchase, please make sure to do them a favor and insist they work with a Buyers Agent, with an Exclusive Buyers Agency agreement.  If they (or you) are looking for a home in the local area, please give me a call.  I know the area.  And you can be assured that I will Work for You. 

If you are looking for property in another region, give me a call anyway.  I have established relationships with agents in many parts of the country, and I can refer you to someone who will take care of your needs. 

Thank you for listening. 

-Jim

PS   If you have a question, or topic you would like to see discussed in future blog posts, please feel free to contact me. 

Last week I attended a panel discussion for real estate brokers and investors.  The panel consisted of five broker/investors who had been in business in the late 1980’s during the last major downturn in the real estate market. 

Here are some bullet-points (and comments) from their discussion in no particular order: 

·        Foreclosures affect not only a given property value, but affect everything nearby, driving down values and rents.

·        In the eighties, no one wanted to borrow because of high interest rates.  Today, rates are low but banks are extremely restrictive with their lending.

·        Talk to lenders. You can get some really good deals now.

·        Everyone needs to survive.  It is going to be hard for everyone. 

·        Don’t include tax benefits in Property Analyses.  Government can take away tax breaks, as they did in the eighties.  They are a nice thing to have, but don’t count on them.  

·        In the Denver market area, residential real estate has probably bottomed out.  However, Commercial real estate lags, and is still on the downswing.

·        You don’t have to hit the bottom or top of the market exactly.  But you must recognize which direction the market is trending.

·        Real Estate is a local phenomenon.  Know your local market & trends.

·        Don’t let your ego get in the way when it is time to make a hard choice. 

·        Look for residential deals now. Form partnerships if necessary to acquire. 

·        Economic Fundamentals are not good now.  We will probably bounce along the bottom for 3 to 5 years.

·        Many of the economic programs are being implemented more for political rather than economic reasons. 

·        The coming Tax increases will negatively affect the commercial real estate market. 

·        Investors will need to get 2-3% spread on Capitalization Rate over Cost of Funds.  

o       Banks are borrowing at interest rate of about 0.25%, but are lending with a floor rate of about 5%. 

o       Need to stabilize at about:

§         6-7% Interest Rates

§         8-9% Capitalization Rates.

·        The “Appreciation Game” has dried up.  Can’t count on buying at inflated prices, with assumption that value will go up.  This trend will result in upward pressure on Capitalization Rates. 

·        Cash is King.

·        Low end Residential may be stabilized.  However higher end residential may still be dropping in value. 

·        The next round of defaults will be the “Alt-A” mortgages.  Low documentation Loans, etc. 

·        80/20 loans will be a big problem.  80% First mortgage used to be a good loan to make.  But not with a 20% Second mortgage behind it, and falling values. 

·        Lots of commercial loans will be coming due in the next two years.  Many lenders are trying to get those loans off of their books.  Refinancing those loans may be difficult, if not impossible. 

·        In general, the government wants inflation.  They can pay back today’s debt with tomorrow’s cheaper money. 

So what is the consensus on what to do?  Here are a few suggestions: 

·        Pay off (Free & Clear) as much of your real estate investments as you can. 

·        Highly leverage the rest.  That way you won’t have as much equity tied up if you have to give something up. 

·        De-finance and de-leverage excess inventory.  But don’t destroy your asset base. 

·        Don’t let your ego get in the way of making hard choices.

·        Pay down consumer debt and any other expensive debt.

·        Get to cash. 

For the Brokers:

 ·        Cash is king.  But do whatever it takes, in order to get the deal done.  You might have to take your commission in personal property (cars, boats, jewelry, etc.) or other property.  

·        Make sure you are going to get paid.  Get written agreement from the lender. Build your pay into the deal.

·        Protect yourself and your family first, then your clients.

·        Cut Expenses.  Really cut expenses.  Both living and business expenses.  Save half of every commission.

The folks on the panel have been through difficult times in the past.  Some lost everything.  But all are doing very well today.  

So other than some interesting discussion topics, what should we take away from this?  I think it can all be summed up in three points.

1. Cash is king.  Get to cash positions.  

2. De-finance, de-leverage, free & clear your properties wherever possible. 

3. Cut your expenses. The generations before us understood getting by and doing without. We can too.

Thanks for listening,

-Jim

Jim@DenverBoulderRealty.com

Welcome to my small space on the Web. 

One of the things I would like to do in this space is to answer any questions you might have about Real Estate. 

If I don’t know the answer personally, I will find the answer for you.

So please feel free to ask anything at all.

Best regards,

-Jim