Financial Advisors vs Monkey Throwing Darts, Like REALTORS?

Disclosure: I am not a financial advisor. This is not financial advice, and you'd be an idiot to follow what I do personally.

I personally only own ONE "stock", and that is called SPY. The #1 bought and sold stock in America, meanwhile most individual investors don't know about it.

It is an Index Fund (also called an EFT, Exchange Traded Fund) that has all of the S&P 500 rolled into one stock with virtually no fees and no annual maintenance. Motley Fool wrote that "3 out of 4 mutual funds don't beat the market." (ie SPY)

So why not just be average and beat 75% of the funds every year?

The Wall Street Journal used to have a competition. They would have a monkey throw darts at a group of stocks and compare the results to the experts. I believe the monkey repeatedly won. What does this mean? This means that the market is too efficient for somebody to consistently beat it.

Just yesterday my girlfriend asked me to review what her financial advisor sent her. It was 25 pages of gibberish. It appeared as if the entire intent was to confuse the reader into thinking, "Wow, they really must know what they are doing, I'll just tell them YES." (Sound familiar? Some Realtors take the approach of, "overwhelm the client with BS to scare them into signing.")

So, I looked up the 10 Mutual Funds in her report. I compared them to my SPY and I was impressed... my monkey theory was blown. 8 of the 10 blew away the industry average (S&P 500 & SPY). This couldn't be... So I had her log into her account. I then looked at what her account had. They were totally different mutual funds!

Upon rereading the manifesto, those well performing funds were the "RECOMMENDED funds" for the future. Are you freaking kidding me!!? The funds she owned did horribly! Probably 10% worse than SPY! So what they did was take 10 random funds that DID do well and say "we recommend you buy these, look how well they did, you will do great next year." Are you kidding me?

So much for a long term plan to leave the funds untouched for 5-10 years. The worst thing you can do is dump the under performing ones (all of them) every year and chase the next big thing. (Re-Disclosure: Ignore me, I am not a financial advisor).

Oh yeah, for those that don't know, there is something called Churning an Account. Oftentimes they only make money when they buy and sell, not when it sits. So not only did their initial picks blow, they now want to sell and rebuy everything to get another commission.

What did we decide to do? Sell everything (they were down from the purchase date, so no taxes, actually a tax break). And we bought just SPY (The S&P 500 rolled into 1 "index" stock).

Why haven't you heard about the #1 stock (in volume, look for yourself) being bought and sold in America everyday!??? Because the financial advisors make squat on it! And magazines are always looking to beat the market and promote their advertisers (mutual funds). Nobody gets rich pushing SPY.

Even the torch bearer of truth, the Motley Fool, figured out that they don't make money on pushing "dumb", reliable and outperforming SPY, instead they receive millions from Mutual Funds to sell their products. This link even talks about how 75% of mutual funds stink and their theory on how to find that 25% (which is nearly impossible in the long run, but they make money watching people try!).

Compare your funds to SPY here, and report back in the comments.

(Sidenote: One reason to consider NOT unloading your funds would be the tax ramifications. For my girlfriend's IRA it was a Tax-Free no brainer, but we held off on her other funds since she would have to pay capital gains for the tax. Now that the market has pulled back, and they are nearly all losses, we are cutting bait and switching to SPY. By the way, we would have been much better off if we had paid the tax and swapped last year)

For those consumers that hate Realtors as much as I hate this financial advisor, I now better understand them.

Hopefully by explaining better what we do, and talking straight, and not feeding you BS, we can separate us from Financial Advisors.

I'd love to hear from a Financial Advisor and debate the practice above.

Please correct me. Show me what I am missing (I really want to know!). Nobody in the history of mutual funds has consistently beaten the average, so why buy Mutual Funds which:

1. Start 1-2% behind every year in management fees (don't be fooled by "no-load" funds, they got fees)
2. Only have a 25% chance of beating the average, with all the downside risk of doing much worse
3. Paying a fund manager $400,000 a year, and he can't even beat a monkey.
   

Discuss...

Also I am making no opinion on whether or not to get into the stock market, but if you did, how did you decide what to buy?

Feel free to forward this post, and don't forget to sign up via email for future posts in the upper right corner of Blog.FranklyRealty.com

- Written by Frank Borges LL0SA- Realtor (not a Financial Advisor)

Please report typos

Read more here at Motley Fool: Why ETFs [like SPY] Beat Mutual Funds

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Market Bottom ALERT! I have 100% Proof!

I officially have 100% proof that we have officially hit rock bottom.

No other indicators from NAR or the government have been as accurate as the proof that I have. I found a 100% correlation!

When My MOM SELLS, THE MARKET SKYROCKETS shortly thereafter!

The chart to the left is factual. Actual points when my Mom has sold her property.

The last arrow is from a recent listing which is now under contract. (see listing, check out the photos and collages).

So there you have it. No more need to think. I have always been against the NAR campaign that says "Buy Now," but now I can show proof that NOW is the time to buy! That market is going UP UP UP!

Thanks Mom, for taking one for the team and helping us all out by single handedly turning markets around!

For my previous prediction on the EXACT best day to buy, read my Market Timing post.

Not a subscriber? Add your email to get spam-free blog posts sent to your inbox. Upcoming posts: My GrandaMa Thinks I'm Broke. Also don't forget to comment. Bloggers like comments.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

p.s. Please report typos

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The First Wiki MLS: FranklyMLS.com LAUNCHED!

I am officially launching FranklyMLS.com, the The First Wiki MLS!

Where BUYER AGENTS, in Virginia and DC, from multiple brokerages come together to ADD information and photo albums to listings they visit. MORE DATA & 1,000+ MORE PHOTOS!

THE "OLD 1.0 WAY": (see all 31 MLS search engines here)

1) One-Way Information. "Here are homes for sale, as marketed by the listing agent. Take it, trust it, or leave it."

2) Photoless MLS Listings!

Sure they sell for $15,000 less but they are a pain for everyone. Oftentimes foreclosures or a listing by an underpaid or sucky agent have no photos!

3) Confusing Branding.

Who is selling what? Each of the 60,000 MLS listings are plastered with one "Brought to you by" buyer agent from one brokerage. I tried to explain: "No, I am not listing 1,298 homes," but it isn't the consumer's fault, it is confusing! See my account on Homesdatabase.com/frankly a service that many agents pay $30 a month for. My annoying face on each listing.

4) Limited Data or Sign-In Required.

All but a few sites have stopped the practice of requiring users to create an account and login in order to see listings. Also many sites will NOT show you all the data possible. Some even hide the addresses so you have to "call your local trusted Realtor!"

5) Fancy, & Feature Filled, But SLOW-

Some of it might be useful, but it slows down the website. Their goal is to have such perfectly targeted results that it can take minutes to find something.

6) Small photos. As our monitor resolutions get higher, the images get smaller. On my screen most MLS sites show 4 inch photos.

7) Computer based. No focus on cell-phone ready searching.

The "NEW 2.0 WAY": FranklyMLS.com

1) Wiki it!

(Attn Buyer Agents, do you have a progressive office? Let me come and talk at your Tuesday meeting so that more Buyer Agents can get involved.)

The World's First Wiki MLS. No, we can not CHANGE the listing itself (or the price!) as presented by the listing agent. What we do is ADD comments and photos to the listing and as a community flag and remove inappropriate comments. Every buyer agent with an ounce of techie-ness should be taking Buyer Agent Photo Albums. What is that? Well, the listing agent takes photos for their sellers to put the house in one light, but the buyer agent takes photos for their clients in a more realistic light. Including shots of how far it might be from a highway, or showing bathroom water damage or a roach infested place (scroll to bottom of those listing to see the comments).

The goal is to add information, and not opinions. No "this house stinks" or "this house is great," but instead factual information like "This house backs to Rt 66" or "This house is listed at 44.6% lower than the purchase price in 2006." Information not evident in the listing agent's presentation. I wish everyone was like Loudoun agents Tony and Danilo with their Blogback blogging for feedback where they list the pros and cons of their listings and ask buyer agents to leave comments. How can you find the reviewed homes? When you do a search on FranklyMLS.com, homes with a YELLOW highlighter, those have the comments, see an example search for 1021 Clarendon.

2) 1,000 More Photos Than ALL other MLS sites.

So far, prelaunch, 10 buyer agents from 5 firms add photo albums with as many as 40 photos of 50 properties. With this, the database grows to thousands of extra photos. Consumers want PHOTOS,PHOTOS, PHOTOS and on our co-opetition website, several otherwise competing agents come together to give what the customer wants... MORE INFO and PHOTOS.

Sidenote: A year ago I bought a baseball glove from Amazon.com. It was photoless. After getting the glove, they asked if I would take a photo of it and post it on Amazon. That is what first gave me the idea for this Wiki MLS. (see post)

The site also has a point system. 1 point for comments, and 10 points for a photo album. For that, the contributor is listed underneath the listing instead of my mugshot on each listing (see above). They also get a front page link to their website. Why contact me as a buyer agent, if another agent has actually BEEN to the property, specializes in that area and has helped you get more information on it.

Buyer agents, here is a "
how to add the photo albums."

3) No branding, advertising, or logins required. Other than the required link from the site owner (me) at the bottom of each page, there is no advertising or cheesy recommended buyer agent next to each listing. Only when a buyer agent contributes to a listing with comments or a photo album, do they get a link to their site. Also, you should already have a buyer's agent by the time you hit this site.

4) ALL MLS DATA(that is legally allowed to be shown) We show everything. Including BOTH the Days on the Market-M (MLS#) and Days on the Market- P (Property). Otherwise known as DOMM and DOMP We even show you the "within the industry 'you must be nuts'" listing agent's name and number. Only 1 other site does that. Don't worry agents, there is a disclaimer that says NOT to call the listing agent and why. So why have it? Well the consumer should ultimately decide.

What we can NOT legally show is: Realtor Remarks, Compensation amount (ask your agent if they take buyer agent bribes), Owner's phone number, showing instructions and lockbox codes.

5) Not Fancy, just FAST.Except for photos of houses, there is not one graphic, icon, logo on the site. No Geewhiz, just speed. With that comes fewer features, but how many features do you see on Google or Craigslist? Just give me info fast, even if it isn't 100% accurate (as in there might be a "madison manor" in both Arlington and Baltimore). FranklyMLS.com searches by keyword only. I know that looking at 400 homes can take a ton of time. The goal was to count each click and scroll in the home buying process and cut that time down by 80%.

1. "Sexy?" homes? Search the Realtor Public Remarks. Try it, search for "sexy." Only a 3 of the 33 local MLS sites will let you search the Realtor Public Remarks as part of an advanced search. Some information in these remarks can't be found in any drop down or checkbox search. For example: Lake Ridge Short Sales or Arlington Metro
2. Keyword search for ANYTHING.One box, search anything. Including, search by ZipCodes, subdivision name, school name (if the agent put it in), street name, street number, city, brokerage name, and even by agent name (nobody does that). It takes getting used to, but it works for Google and Craigslist, dso it works for FranklyMLS.com
3. Spreadsheet mode. Search like the Realtor's back end system. Text only results to quickly find what you need. Also the columns show you in a quick second the List price, Original Starting price, Tax assessment and DOMp/m. (See link above)
4. Photos only mode. Just a page full of 50 medium sized images. For the quick glance.
5. Photos and Details mode with image rollover. Most sites that have this mode have useless 1 inch images. We show in this mode the 4 inch images that other sites use for their "full size." Also you can use a rollover link to see all the other 2-30 images.

6) HUGE PHOTOS. Example. All the other sites use the 4 inch photos for each listing. Probably to leave room for mortgage calculators, frames, ads etc. We instead are the only ones that pull the high res 7 inch photos as the DEFAULT. Bigger is better.

7) Cell Phone Ready. Nobody offers this... for FREE.

With the former slogan, "So easy, a cellphone could use it," the site wasn't designed for the cellphone, but it is so simple that it still works great on most cell phones. I recommend the "photo mode." This is perfect for when you are in front of a house and want to get the details. I suggest using the house # and the zipcode.

******

Other interesting features:

• FACEBOOK integration.We all have been asking ourselves if a useful tool for Facebook will come up. Well now there is one. You can "save" each listing into your Facebook account with 1 click. Then your friends can comment on what you have selected, or you can share them easily with loved ones.
• Super Short URLS. http://franklymls.com/FA6683625 for easy copy and pasting. (Update: we just dropped the .html) into an email for others to share. I'm obsessed with "easy."
• Super Short Search Strings: www.franklymls.com/default.aspx?m=R&h=ALL&s=1021+Garfield (soon this will be even shorter). You can also bookmark the search string to quickly see all listings for that search.
• Find Similar Results: If you see a "more" or a ">>" click it to find similar homes or to see ALL the listings that a particular agent has (great for comparing listing agents!).
• Links to similar Craigslist FSBOs, and to Zillow for previous sale data.
• Link to that property on Google maps. Click on the "map" link.

So that pretty much wraps it up. I hope you have enjoy the site. I would love to get some feedback from current users (see Feedback $$ contest), local agents and others on how to improve the site.

- Written by Frank Borges LLosa-Broker/Owner FranklyRealty.com

Reviews of FranklyMLS.com, the new Wiki MLS (send me your review)

• A Stroke of Genius! The Epitome of Real Estate 2.0 By Matthew Rathbun Real Estate (VAR Educator of the Year)
  
• Broker launches 'Wiki MLS' site Inman News
  
• Clicking with Buyers The Washington Post
• Realtor Bloggers Make Headlines - Evolving Buyer Habits and FranklyMLS real/diaBlog
• Great Consumer MLS Site!
  

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My Free NVAR Adv Photo Class This Friday!

Advanced photo this Friday (3-28-08) for NVAR Realtor members!

Official promo:

****************

PHOTOGRAPHY Shoot and Use Software Like a Pro
Friday, March 28 2008 from 10am-Noon

NVAR Herndon Center NVAR is hosting a photography workshop taught by former National Geographic published photographer, Frank Borges LLosa, whose photos have been in over 40 publications worldwide.

The workshop will cover: wide angle photography, photo correction with free software, online photo sharing, how to make a website for each home you sell, MRIS's new 30 photo system and buyer-agent photo albums. *Free to NVAR Members with one house photo or MLS Listing with photo(s).

To register please e-mail (update: email me) . Don't forget to include a recent MLS listing with your registration for class critique of your photos.

**************************************

Specifically we will cover:

1. Wide angle photography. Read about the amazing Kodak v570 Blog Post
2. Collages for your main image. See Collage Blog Post
   
3. Photo correction with free software. Consider downloading Google's Picasa.com and playing around with it before class.
4. Buyer Agent Photo Albums. Read this blog post and 2 minute video
5. Domain name per house websites like www.6210n12st.com for only $9
   
6. Online Photo Sharing. Check out my album on PicasaWeb
7. SUBMIT YOUR PHOTOS. Here is one of my listings with 30 photos. Submit your best listing photos and I will go over how to make them better.

Also learn how to do Panoramics:

LEARN HOW TO MAKE A COLLAGE

Advanced:

or Easy, In 30 Seconds:

I hope you can make it. We have 90 registered Realtors. EMail me if you want to be added.

Written by Frank Borges LLosa

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Short Sales Are "Fake Listings." Only 5% Close!

Most Short Sales are what I call "FAKE listings."

Only 1 in 20 sells.
In Arlington only 3 have sold out of 65 attempts.

I briefly went over Short Sales when I defined all SOL Homes including REOs, Bank Owned Etc. But Short Sales need more attention, as they are very tricky and misleading.

A Short Sale is a listing for sale that requires "Third Party Approval." That means that 1, or 2!!, banks are owed MORE than the list price.

For Example:

1. Home is bought for $500,000 with 5%, or $25k down.
2. Home has a $475,000 mortgage.
   
3. Value dropped below $475,000
4. If the seller is facing foreclosure, they slash their price for a quick sale
   
5. A Short Sale is attempted at $450,000
6. If the bank accepts it, the BANK eats $25,000 (see Phantom tax for Seller)

The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong. Read on.

Bank Trick 1: "Sure, we will consider a Short Sale, IF YOU KEEP PAYING US."
Yep, a bank sees a desperate seller, and a potential $50,000 loss. They then mislead them into thinking that they might consider taking a bath on the deal IF the owner keeps paying their mortgage. The bank then ignores offers for 2-4 months in order to squeeze out another $2,000 x 4 or $8,000 profit. Brilliant. The bank then takes it over after foreclosure and sells it for $10,000 OVER the Short Sale List price. $18,000 better off, NOT doing a Short Sale.

Bank Trick 2: Sometimes the bank has mortgage insurance and it is CHEAPER for them to let it foreclose versus allowing a Short Sale, which is NOT insured.

For example, I was at an NVAR short sale class and a Realtor asked the speaker, "Why after 60 days, calling 2 times a day (120 calls) with a full price Short Sale offer, did the bank not call us back?" The speaker claimed it was due to an overworked staff.

I asked:

1. Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
2. Was the home bought with Mortgage insurance? The answer was Yes.
3. Bingo! Why eat $50,000, by accepting the low offer, if the bank a) gets $3,000 a month and b) is insured against a foreclosure and NOT a Short Sale.

She was pissed. She realized that she had been "had." But this goes on ALL THE TIME. It can take MONTHS to hear back.

Another example:

1. A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
2. Then he drops it to $570,000. No bites, but the foreclosure is pending!
3. They SLASH it to $530,000
   
   (sidenote, I get flooded with calls from friend that want to pick it up for a steal at $470,000! I said that it was impossible... since I'd buy if that price was a possibility.)
   
4. It sits for another month, then the listing disappears after 100 days!
5. A month later it is "bank owned" and listed for $560,000
   
6. It sells for $540,000 in 26 days.
   

The moral here is banks are not dumb and the market isn't so horrible that they will take all these lowball offers. They sold it for $10,000 OVER the previous list price (which probably had lower offers).

Short Sale Statistics:

Reston homes from $300k to $400k.
- 20 Active "Short Sales" in Reston (watch out for "Not a Short Sale" listings)
- 73 were Withdrawn, or Expired.
- 3 Under Contract (1 under contract since Nov 2007! Many UC do not close.)
Only 3 sold in the last 24 months. 3 closed sales in 100 attempts!

1. Dropped From $480k to $400k, sold at $400k (Full list)
2. Dropped from $430k to $400k sold for $380k (5% under list)
3. Dropped from $380k to $350k sold for $345k (2% under list)

Arlington Short sales.
- 25 Actives
- 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.

1. Listed at $335k, sold for $335
2. Listed at 700k dropped to $620, sold for $600k
3. Listed at 480k dropped to $420k sold for $420.

In Alexandria, only 8 have closed in 2 years out of 80 attempts.

(most were at list, or 2% under list, some were $20k over list)

I show this, so you don't think "Wow, they are desperate, we can now lowball. These 3 were the ONLY successful ones. Probably because they gave the bank a real offer.

Ok, so enough already with the War N Peace, what should I do?

Advice for Regular Sellers

1. Do NOT blindly compete with a Short Sale. If you get an inexperienced agent, and they see 3 Short Sales in your neighborhood, and they have you compete against these "fake" listings, you can lose $25,000. Hope you "saved a ton" on that agent. (see Realtor Rebates)

Advice for Sellers Facing Foreclosure

1. Watch out for the bank tricks to "keep paying." Talk to a lawyer that specializes in bankruptcy to help guide you. They MIGHT recommend stopping payments immediately and saving it up for a rental.
2. Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
3. If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
4. Get bank approval for your list price before listing it. Put in the listing remarks "List Price approved." Otherwise you will get lumped into all the other Fake Listings and ignored by smart buyer agents.

Advice for Buyers looking for a "steal" (see "deals" post)

1. Avoid Short Sales, or expect to wait 2-3 months and expect to put in 5-10 offers on Short Sales before one is accepted. A Short Sale in my building now has 4 offers. He says he is expecting a reply any day now... sorry, but yeah right!
2. Look for Approved Short Sales. Ask if the bank has been contacted and if a price has been approved. Multiply time estimates by 4. Ie. 3 days= 12 days.
3. Consider offering near, full or OVER list. What! Over list! Are you nuts! CNN says this is a BUYER's Market! I know it sounds crazy, but if you and your agent see the price is well under your other options... I've said time and time again, I'd rather you pay $10,000 OVER list on a house that is $50,000 under the competition versus "saving" $50,000 on a home that is overpriced by $100,000. Ignore list price, focus on VALUE.
   
4. Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)

Advice for Buyer agents & Listing agents

If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client's "deal" not turn into destroying his own investment).

Sidenote: A home should NOT go under contract until the BANK signs it, but many agents will make this mistake. The seller signing it means nothing, and it should stay on the market as Active.

• Updated Correction 2-29-08 I'd like to thank DAAR CEO Jeanette Newton for this correction. I'm excited that she is participating in blogging!
• My above sidenote about when to go Under Contract is 100% wrong. So let me explain... IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.

  
  Here are a sellers' options (please comment if you know of more options) :

• 1) A seller can counter the contract and add in a "Kick Out" so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means "there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.")
• 2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the "offers" unsigned to the bank. Why not try and keep your home as "Active" for as long as possible? Some banks will require the seller to sign, so try #3.
• 3) Or lastly, the seller might add "acceptance of the contract is contingent on lender approval." or "contingent upon review and approval of the lender." That one line can keep it "Active." I am not a lawyer, so please verify any additions you make to a contract with a lawyer.

• As a buyer agent I would prefer it to be "Under Contract" if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with "Increase your price $2,000 and we will place it UC/KO."

New Trick: Now that Short Sales are getting a bad wrap, some listing agents are NOT disclosing that it is a Short Sale.

Conclusion: Short Sales suck.

Question: Realtors, should you have a "No Show" policy for Short Sales that aren't approved by the bank? Are they really "for sale" if the owner (the bank) doesn't even know about it? Feel free to just tell your clients "read this blog."

-Written by Frank Borges LL0SA- Broker FranklyRealty.com
(please report typos)

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Agent Trick: "Buying a Listing" Vs No Recommended List Price

When I say "Buying a Listing," I'm not referring to the actual act of buying a home. Instead I am referring to industry agent to agent jargon. It refers to an unethical trick where some listing agents will inflate the recommended list price in order to win the deal.

I have referred to my mother several times in my blog. I've learned more about real estate from her than anybody else, oftentimes from her mistakes. She was never an agent, but sold several homes over the last 20 years. She would frequently fall for the "Buying a Listing" trick. She would interview 3 agents and inevitably pick the agent that would promise her the highest price. But her homes would sit and drop. Only after being on the inside did I learn that this was a technique used to win business.

So now when I meet a seller, I don't give a price recommendation! Pretty counterintuitive heah? And you might be thinking, "I thought that was the #1 value you brought to the table. If not that, what the hell are you good for anyway?" This is why I don't:

1. Picking an agent based on their list price recommendation is ultimately the worse choice you can make. I've said before, "So they told you $640,000? What if I told you $675,000, would you hire me then?" And the answer is frequently YES!, with a hint of saliva glimmering from the corner of their mouth. Well that is EXACTLY why I won't tell you a price!
2. Many agents will spend only 20 minutes printing out a list of recently sold homes, and they come up with a range. (sidenote: I don't get ranges. Everyone wants and expects the TOP of that range, right?) But more importantly, it can take upwards of 5 to 10 hours to come up with a price and that is done WITH the client (maybe another post will detail this process). So, I won't spend several hours on a listing, if I haven't even been hired yet. You get my full attention... after you hire me.

I also don't like the agent vs client mentality. It is counterproductive, when it should be more of a collaboration.

Once I went to a "large" real estate company meeting to teach them about blogging. The broker ended the meeting with a pep rally style, "Now go out there and get some price reductions!" Are you kidding me? It shouldn't be a battle between the agent and the client, but instead the agent fighting to NET the client more. Being a partner in the process, not a smug know-it-all looking after the agent's best interest.

If you pick an agent based on the highest recommended list price, be prepared to SIT, DROP and NET less.

Written by FranklyRealty.com Broker Frank Borges LL0SA, and I approved this message.

(please report typos, and follow the comments at blog.FranklyRealty.com)

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Buying A Foreclosed Virginia Home? Beware of Bank Addendums & $3,000 Hidden Fees

So you are buying a Virginia bank owned property, and REO or a Short Sale? You need to understand the various bank addendums that accompany them, or you might miss a $3,000 hidden fee.

But first, a quick background. Agents that are members of NVAR, and are REALTORS, use a 15 page contract that was painstakingly created by lawyers and a contracts committee. They try to design it as evenly as possible with several "fill in the blanks." Local Realtors receive hours of training on these standard contracts. While a client might want to also have the contract reviewed by a lawyer, there is some comfort knowing that it everyone uses the same contract and was written by lawyers with a neutral bias.

But when you buy a bank owned property, you start with a standard contract, but then the bank sends their oftentimes non-negotiable "bank addendum." I can't blame them. Sometimes the decision maker is in another state and dealing with hundreds of offers. Any small change in contract terms might require bringing in lawyers etc. They would rather take a lower price, but leave their terms untouched.

The addendums are heavily 1-sided FOR the banks and since every bank has a separate bank addendum, there is currently no training for REALTORS, (I proposed an NVAR class to fix this) so that they can better understand them.

Here are just a FEW of the things you should know about bank addendum contracts:

1. Addendum means "Everything in the main contract is nullified" if the addendum covers anything already in the main contract. So if your main contract says you get a walk through, but the addendum says "As-is," the addendum wins.
2. Some bank addendums are written nationwide and ignore local laws. Local laws DO supersede these contracts, so therefore sometimes there are terms in them that are not enforceable.
3. Watch out for hidden new fees. One of the agents that I work with had their main contract agreed to, but the addendum needed to be signed. The addendum sneakily (is that a word?) shifted a $3,000 tax to the buyer. Hello! That is real money, don't just sign it.
4. Most addendums are more "AS-IS" than the regular contract. The bank would rather take less and be done with nickel and diming. This is fine, as long as you realize and are ok with this risk
5. Most addendums allow the bank to cancel the contract all the way up to the close date. Yep, they can walk, sometimes for a $1,000 fee or sometimes with no penalty. If they get a higher offer, or whatever, they can break the contract. Again, this might never happen, but you need to know what COULD happen.
6. Bonuses to use their title company. In Virginia the buyer is legally allowed to pick the closing company. But oftentimes the bank wants their company to do the closing (in part because they share in the revenue) so they offer a $1,000 incentive. On something like a bank sale, with the former owner losing their home, I would want MY title company to tell me everything is all clear.
7. Termite provisions are stuck. Normally the seller pays if there is termite damage. The addendum shifts the risk back to the buyer. I'm not talking about the $35 inspection, I'm talking about repairs.
   

Does anybody else know of details that are hidden into these addendums? Again, there are dozens of variations, so make sure you review it carefully and have a lawyer review it.

Make sure you work with an agent that has done some of these deals and can guide you through the higher risks, but which oftentimes comes with lower priced bank homes.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

Don't miss the comments and discussion by other agents with other bank experiences. And please report typos! Keywords: Arlington, Fairfax, Alexandria, Manassas.

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Realtors Posting Client Signatures Online?

I am still in shock.

I was looking at a listing online and I saw a link to "Document 1" and a "Document 2."

Amazingly this Realtor had uploaded the Property Disclaimer sheet with their clients' signatures! I'm not talking about on the back end MLS, but on a public website! They probably did it by accident, thinking it was available to Realtors only, but this is horrible.

As if identity theft wasn't bad enough, couple that with a person that has announced that they are moving, and they are perfect prey for identity theft.

I agree with Chuck Boles who taught an NVAR class with me, and suggested to everyone that the property disclaimer (since it has the client signatures) also NOT be made available at Open Houses so that anybody could have the seller's signatures. Instead put "Signature on file, available upon request by Realtor at time of offer."

So is it just me, or is this a major privacy violation?

I am tempted to call out the "Top 5" major company that did this, but I'll restrain myself until they have a chance to fix the issue. If they say they are fine with this, then I will call them out by name.

Update: I reported it to the local Realtor association on Friday at 9pm, and as of Monday at 9pm, the client's signature is still public. I hope they take action and will consider a privacy policy and ask that all agents adopt it.

Homeowners: How mad would you be if you were selling your home, and you found your signatures posted online?

NVAR Realtors: If you think this is wrong, contact NVAR to tell them that if they don't create privacy policies (or at least suggestions) for all Realtors, a few Realtors will give the rest of us a bad name.

Written by Frank Borges LL0SA- Broker FranklyRealty.com

Please report typos and come back to Blog.FranklyRealty.com for 15+ comments.

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Buyer Agent Photo Albums. Save hours.

So you've just looked at 10 homes and your brain is fried.

Everything starting to look alike? Oh No!

The solution: Buyer Agent Photo Albums.

Your buyer agent should be taking 30-50 photos per house that you visit. Seems like a nobrainer to me, and I've been doing it for years, but now I thought I'd share this simple, yet extremely effective idea. If your Realtor doesn't do this, feel free to send them to this post and say, "Gimme dat!" or better yet, get a tech savvy agent.

While way too many listings go photoless, (see Buyers! Don't Skip Photoless Listings. Save $15,000) even the listings WITH photos are meant to put forth the best angles for the seller, not for the buyer.

A buyer's agent photo album should capture a truer picture of each house, with the BUYER in mind. Including:

• Each room, even if it just seems like 4 walls, "nothing" is "something"
• Each closet
• Hallways and staircases
• Washer and dryers
• Problems like ceiling watermarks and anything questionable
• Unfinished basements or horrible 3rd bathroom
• Details like linoleum floors
• The neighborhood view
• The backyard view

And the shots should show where the rooms start and end. For example, take a real shot of that bedroom that you thought was big in the MLS photo, but was really just a great photographer that ended the shot right before the wall turned (I admit, I do that).

So your buyer's agent should be offering this service. If they aren't, or can't, I guess the client could do it, but they should be absorbing the house on a macro level. Meanwhile the agent snaps 4 or 5 quick shots per room (no time for Ansel Adams). I strongly suggest the Kodak v570 (photo example shows what the v570 captures vs a regular camera.)

The camera should be set to the LOWEST resolution for faster uploading and web viewing. Just start firing away like a mad man. Put it on motor drive if you can, and consider turning OFF the flash for faster recycle time between photos. If you know how to change your ISO, set it to 1600.

The point of these photos isn't to be pretty, but to be fast. Many look like this:

Steps for a buyer agent photo album:

1. Start with an exterior photo and a photo of the house number. That way the viewer knows where each house begins.
2. Shoot a closeup of the listing sheet, so you have the address and price.
3. Take 30-50+ photos per house
4. At the end of the day, upload them using Picasa's free software from Google (or Ofoto) and with one click, you can upload it to a private photo album just for your client (don't send tons of attached emails, that is so 2001).
5. Then you send them a link to the album.

The other huge advantage... SAVE HOURS!

Frequently buyers want to "see it again," because they don't fully remember how big something was, or the condition of the house. That is fine, but the photo album cuts that need by 80%. Saving the client's time (and the Realtor's time).

Written by Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com

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Freeze Interest Rates? Bankruptcy to Profit?

On the heels of our discussion about legislation to remove the Phantom Tax associated with short sales, (see my quote in the Washington post on Short Sale) there is also legislation out there to freeze Adjustable Rate Mortgages for homeowners.

I have the following questions, maybe you know the answers:

1) Will it only help those facing foreclosure, or will everyone that locked into a 2% teaser rate get the benefit of a 4-8% reduced rate. On a $300k house, this comes to up to $24,000 in savings per year! The plan calls to help 1.2 Million distressed homeowners.

2) Who pays for this? The banks already have calculated expected earnings based on the rate jumps. Do we expect the banks to just eat it? Or does the government write the banks a check?

3) If a $300,000 house increases in value to $400,000 in 4 years, after the government gave some a $96,000 bailout, will they be allowed to take that $100,000 profit?

What I MIGHT be able to understand is a Minimum Payment Option, but the unpaid balance be paid at the end, when the house is sold (like a minimum payment on an Option Arm).

My understanding of the proposed solution:

1. 2005 purchaser pays $300,000 for a home. 100% loan. 4% rate, that adjusts to 7% in 2007.
2. 2007, the government (or the bank) covers for the 3% difference ($9,000 a year)
   
3. 2010, if the seller can sell for $330,000, after 3 years of government subsidies totaling $27,000, they PROFIT $30,000

My proposal:

1. 2005 purchaser pays $300,000 for a home. 100% loan. 4% rate, that adjusts to 7% in 2007.
2. 2007, the government (or the bank) covers for the 3% difference ($9,000 a year)
   
3. 2010, if the seller can sell for $330,000, after 3 years of government subsidies totaling $27,000, the payback the subsidy for a PROFIT of only $3,000
   

BOTTOM LINE: While a measure like this might help distressed homeowners, I can see many situations where this might result in a near bankrupt homeowner suddenly PROFITING $30,000 from taking out a risky loan. That doesn't seem right.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com

(please report typos)

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My Quote in Washington Post Elaborated: Pitfalls of Mortgage Cancellation Tax Relief Act, H.R.3648

Below is my quote in today's Dec 7th 07 The Washington Post story, "Those Who Avoided Risk Call Plan a Raw Deal"

• [Lead up to quote; red emphasis added]... The aggravation has been building for a while and stretches beyond the agreement announced yesterday. For instance, under one congressional proposal, there would also be a break for "short sales" -- that is, when owners sell a home for less than is owed on the mortgage and the lender forgives the difference. Now, the amount that's forgiven is regarded as income, and the seller owes tax on it. The proposed legislation would forgive that tax.


• [My quote] Without the threat of the tax, sellers might not be as reluctant to consider a short sale, said Northern Virginia real estate broker Frank Borges LLosa. He predicted the number of such [short] sales could double.
  
  Maybe Congress should allow a 50 to 75 percent break instead, he said. "I am not saying not to help out these people," LLosa said. "It's very sad. I have spoken to people who have lost their homes. I just don't know if a bailout is the right thing for the marketplace as a whole."

I've discussed Short Sales previously in "SOL" Homes: Virginia MLS Foreclosures, REO, Short Sales Defined, but here is a quick recap:

Short Sale: Usually a Realtor MLS listed house that is heading toward foreclosure. The deal requires 3rd Party Approval (the bank) because the seller is trying to sell for BELOW the loan amount and is hoping that the bank will approve the deal, and eat the loss. Only about 5-15% actually get to closing since banks oftentimes say, "no" (blog post coming soon on this, so make sure you subscribe Update: Here it is).

Example of a regular Upside Down Sale: (loan amount is over the sales price)

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, seller must bring a $25k check to closing.

Example of a Short Sale:

1. 2005, $500k home was bought with a $475,000 loan and $25,000 cash (5% down).
2. 2007, home price drops to $450k.
3. To sell at $450k, they show the contract to the bank and ask for a short sale approval.
4. Upon rare approval, the bank eats the $25k.
5. Seller still gets a taxable 1099 for bank's loss, also called Phantom Income (at least for now).

• The benefit for the seller is not having a bankruptcy and or foreclosure, which is worse for their credit.


• The benefit to the bank can be lower foreclosure, legal and remarketing costs.

For those that they can't afford an Adjustable Rate Mortgage that is resetting much higher, this can be the savior, with the exception of having to deal with the Phantom Tax. But now the "Mortgage Cancellation Tax Relief Act, H.R.3648" wants to remove the 1099 tax bill.

This sounds great and dandy for a polititian to "keep from kicking people that are already down," but if you remove the penalty for doing a short sale, this will lead to... MANY MORE short sales.

More Virginia short sales will drive down prices, thus hurting others in financial trouble, and their neighbors that didn't buy risky loans.

And regarding any legislation to FREEZE rates for distressed homeowners, Freeze Interest Rates? From Bankruptcy to Profit?

-Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos)

Sneak Preview: My next blog post will talk about FAKE Short Sale prices, and how you can lose $10,000 as a seller competing against these oftentimes fake listings, and how only 5-15% ever get to closing.

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Dec vs. Jan. When to LIST Your Home.

Part 2 to my: Current Sellers "Wait Till Spring"? Yeah Right. Lose $10,000, which focuses on sellers that put their home on the market around September and whether they are better off trying to get a deal done in December, vs waiting until Spring to get a higher price. My data showed that they got $10,000 LOWER if they waited until Spring.

The question that I still have is:

If you have a home for sale that is "ready" (a fully staged Arlington Virginia Home), are you better off waiting until January 1st (or Spring) to list your house?

LIST TODAY (Dec 1st) PROS:

1. Inventory is lower, less to choose from for buyers.
   
2. Everything seems stale and leftover. Maybe put a hot listing on, and those that are actively looking will jump on it, even in December?

LIST TODAY CONS:

1. Fewer buyers. There are 2x the # of buyers (lookers) in Jan Vs Dec.
   
2. Source Google Trends: MLS HOMES
   
3. The more Days on the Market, the lower the price tends to go. You have a better chance of selling your house the first week it is listed, especially if you can get 2 interested parties.
4. A TON MORE LISTINGS in Jan. Yes there is more demand (buyers) but there is a TON MORE SUPPLY.

---

So I ran some numbers (I don't really trust numbers, but lets see...).

I looked at all homes in Arlington that were listed on 12-1-06 through 12-10-06 (Dec Listed) and compared how they did to listings that were put on the market 1-1-07 through 1-10-07 (Jan Listed), this is what I found:

This shows me:

• There are 20% more new listings in Jan vs Dec. (vs 100% more traffic from buyers)
  
• Homes sold 30% faster in Jan
  
• Homes listed in January were 40% MORE likely to sell within 2 weeks.
  
• BUT The actual % of Original Price was only .3% difference ($1,500 on a $500k place).
  
• The Median price was $100k off, that doesn't mean homes went up 20%, just the type of home was a little different. I pretty much ignored that number.

Based on these numbers, with most weight placed on the % of list, I think it doesn't really matter when you list it. I've said this about Market Timing for buyers, I guess it applies for sellers too.

Supply and demand already works itself out, I still don't believe you can BEAT the market. (ie more buyers, and more listings).

But Frank, you said Dec was better for buyers!

Yep, my Market Timing for buyers post says that you shouldn't time the market, but if you find yourself in Dec, you might get a better deal since there are fewer buyers. I guess that might NOT be true after all. Sorry about that.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos)

Also see Jeff Royce's Taking Your House off the Market for Winter?

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UP 14%!? No, Down 26.2%!? DATA. What Is It Good For?

I was reading The Washington Post on Sat November 24 and I came across their "Real Estate Trends" report for Fairfax County. They compared the first 6 months of 2006 to the first 6 months of 2007, excluded condos, and they used data gathered through the courthouse (ie. not the MLS).

Out of the 47 zip codes, they said the #1 fastest growing zip code was 20170, Herndon at +14.4%.

How can this be? I recently wrote about Herndon and the Foreclosure mess going on over there with as many as 48% of homes on the MLS from $300k to $400k being in some stage of foreclosure (See my SOL foreclosure post).

So I set out to prove the data wrong (I'll admit to my bias). I suspicious of the Post disclaimer saying "It excludes some types of marketplace transactions, particularly those that are not at market price."

Aha! Gotcha! My translation: Take out the foreclosure and short sale problem in Herndon and home prices went up!

Oh this is gonna be good!

I pulled data from the MLS for the same time period. Like the Post, I used the Median price.

Washington Post's Herndon data:
Jan-June 2006
356 Homes $411,000
Jan-June 2007
123 Homes $470,000
$59,000 increase or +14.4%

Frankly Herndon Data (from MRIS)
Jan-June 2006 291 Homes $475,000 Jan-June 2007 199 Homes $485,000
$10,000 increase or +2.1%

I didn't see 14.4%, but it still went up!?

So then I ran the numbers from July 1 2007 to present.

Frankly Herndon Current Data (from MRIS)
July-Nov 25 2007
134 Homes $421,000
(vs $485k in 1st part of year)
$66,000 DECREASE or 13.1%
(this was based on 6 months later, so one could argue that annualized that is 26.2%)

Up 14%? Down 13%? Down 26.2%? Flip Flop!

Bottom line is, I don't believe DATA. Anybody's DATA

How can you compare 300 homes in a zip code to a completely different 150 homes a year later? These are NOT the same homes. Add in a new community of 30 homes (which are always much higher than resale homes) and it can make a zipcode look like it was skyrocketing. I even think new homes actually might be the reason why NAR has never shown a decrease in home sale prices (with the exception of this past year).

And even if you DID believe the data, what then? It is still useless! So, if Herndon is one of the few zip codes that are UP (as well as 22046, 22041,22309), what?, you should buy there? Or are they implying that you should buy in the zip code that they say is down 10-19% (22102, 22124, 22031, 22030, 20124)? Since they are a better "deal?"

You also have data extremists, such as bubble prognosticators. To the right is a famous chart from the S&P Case-Shiller index. They are claiming that prices will drop 50%. Is your $500,000 condo going to be worth $250,000 in a couple of years?

Oh, by the way, Robert Shiller is getting rich on this doomsday prognosis.

And the Realtor Assoc comeback to this is weak:

Lawrence Yun, NAR's chief economist says, "In some ways we’re tracking different things. We use MLS data, so our figures are as timely as possible and are more representative of markets. Shiller uses county records and mortgage data from the secondary market. These sources lag further than ours and they capture a disproportionate percentage of higher-priced homes."

Let me break that down really quick. NAR's main excuse is that the data is delayed and is more weighted toward higher priced homes? Um, that was a horrible comeback.

1. Ok, it is 3,6, 9 months behind, so just wait, or move the data over.
   
2. Are you saying you agree with them in regards to higher priced home? So with the average home in the US being somewhere around $250,000, anything "high priced" like $400k will drop like they say?

NAR better come up with a better comeback to that, no wonder people believe it.

Bottom line is, data is too easy to manipulate.

Ok, so what should buyers do (if they, not their Realtor, decide to buy)?

1) Don't try to time the market Attn. Market Timers! The EXACT Best Day to Buy!

2) If you are ready to buy, use the Round Robin Method "Round Robin" Buying System. Unearthing The Desperate Seller.

And the only data to look at is data pulled by your agent showing you extremely local data (as in down to the neighborhood) while making adjustments PER house. Does it have a garage? Compensate for that. Larger Sq Footage? Etc. Then and only then can you see any real trends.

- Written by Frank Borges LL0SA- Broker FranklyRealty.com (please report typos!)

Like what you read? Thanks. Make sure you subscribe (upper corner of Blog.FranklyRealty.com) so you can get my next post on Days on the Market correlation to prices in Northern Virginia. Also forward this post to others or share this post using your Facebook account.

Update: Look at the Nova Housing Bubble and their example of Herndon homes selling for 41% off their previous purchase price.

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Buyers! Don't Skip Photoless Listings. Save $15,000

Punchline: Buy homes with No Additional photos= Save $15,000 on a $400,000 house.

Buyers LOVE seeing tons of photos for each listing online. I think Realtor.com said that listings with multiple photos get seen 6 times more than listings with 1 photo. The tendency for buyers is to see a photoless house and think it is garbage and skip to the next listing, when in fact it might just be a sucky listing agent or a foreclosure with an underpaid agent. (see the Arlington foreclosure Megan bought, it had no extra photos and she almost skipped it)

I've vented previously about Sucky Listing Agents that use free "drive-by" high school photographers to post one default photos on the MLS. Well sucky listing agents are GOOD for buyers!

Fewer photos= Fewer showings=Fewer buyers= LOWER PRICE!

Therefore, DO NOT skip photoless listings. I know it is a pain (also a pain for the buyer agent, which should be making a photo album for each viewing), but take the extra effort and potentially save $15,000.

I painstakingly reviewed 268 Sold listings in Fairfax since 5/1/07 from $400k to $500k.

24% had NO ADDITIONAL PHOTOS!

This is embarrassing! Also note that 57% of FORECLOSURES, Bank Owned, REOs etc had no extra photos.

Only 12% of agents posted the maximum 20 photos. This amazes me (FranklyRealty.com Requires All 20). Note that the local MLS just went to 30 photos, and now they are free. So if the $12 was too much for your agent, now they have no excuse.

I also found listings with more photos sold faster (duh). Here are the photos to Days on Market (DOM, not the champagne) analysis:

• 1 Photo = 70 DOM Avg
  
• 6 Photos =40 DOM
• 16-19 = 36 DOM
• 20 MAX= 32 DOM

The Closed NET Price as a % of the Original Price also showed a direct correlation.

I scrubbed the data to find the REAL Original price. I manually adjusted the 20% of listings that were relisted (see my best of 2006 blog on MLS DOM data fudging), and I adjusted for seller subsidy.

Listings with fewer photos sold for less.

• 1 Photo= 91.2% of Original Price
• 6 Or more= 95% of Original Price
  

Therefore on a $400,000 home, Photoless listing sells for 3.8% LESS.
(Now one can argue that a sucky listing agent also might suck at proper pricing, but come on, you get the point)

Bottom line for Buyer: Just like I've said staging gets you MORE $ for your listing, the opposite is true for buyers. Buy unstaged homes (see Don't Buy Staged Homes) when you can and consider the poorly marketed homes to get a better deal.

Bottom line for Sellers: Duh, at the very least, make sure your agent puts a ton of photos.

Bottom line for Agents: Keep up the bad work, it makes me look better.

Share this blog post with a friend. Make sure to sign up for this blog (upper right of the page Blog.FranklyRealty.com) as next week I'll show more of the data and how Days on the Market correlates to price. Also more on DOM-M vs DOM-P Relisting tricks.

- Written By Frank Borges LL0SA Broker