Home Buying Risks. Lose 8% on Day 1! Hold LONG TERM! {Video}

Many Realtor blog posts will say “BUY NOW!!”, or “Interest rates can’t get lower!” Over here we first say DON’T BUY, ASK WHY (since 2006 when I had hair). Which means, let’s first figure out if buying is right for you, and THEN move forward. No “don’t want money on rent” B.S. Heck Rent is CHEAPER!!

Did you know the moment you buy a home, you lose 8% equity! For those of you that put down 10%, that is an 80% loss in your investment overnight, or with a stroke of a pen (actually hundreds of strokes, those damn stacks of closing paper).

Everyone has heard about the “Drive a new car off the lot” effect. Well this is the same. (on the flip side, most car values keep going downhill.)

I’m not trying to scare you, but just put into perspective how real and huge an investment this is. You better get it right, and have the right representation (subtle plug?? Contact us 3-6 months before you think you are ready! This ain’t a checkout in Target.). Did your mom’s friend’s agent warn you about this? Or that “great deal” agent? Probably not.

One of my first qualifying questions is “HOW LONG DO YOU PLAN ON LIVING IN (more…)

  • 2
  • March
  • 2013
Posted in Buying Risks., market timing | 6 Comments »

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

Update 3-19-09: This post is OLD. See new Post from 2-09 Short sales are closing, if done correctly. They can be the best “deal” (I hate saying “deal”). The post below is still great background info.

Update 1-22-09: Still reading this #1 blog post on short sales for a background on the process? Well it was written over a year ago. Short Sales are now closing MUCH more frequently in SOME areas (an 0 in areas like McLean). Subscribe to this blog for I plan to run some numbers on the % that are closing. My guess is the range is 1 in 3 (vs 1 in 20) before. However closing rates can be as high as 80% if your buyer agent asks the listing agent these questions: Top 10 Short Sale Questions.

(Update 6-16-08: This post was written on 2/08, this marketplace is changing ever month. Make sure to subscribe to the blog to get updated on the marketplace, like an upcoming post on more Short Sales starting to close.)

As of 2-08, most Short Sales in Northern Virginia are what I call “FAKE Listings.” (note that this is Virginia, every area is drastically different)

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 as of 2-2008: Short Sales in Northern Virginia 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.

p.s. See Washington Post Article on Short Sales

  • 20
  • February
  • 2008
Posted in Buying Risks., Short Sales, Virginia Foreclosures | 119 Comments »

L&F CEO Emails Agents Not Using Partners. Too far?

I rarely write commentary about news articles but this one stood out.

I was intrigued by Dina ElBoghdady‘s expos√© today: Realtor Discourages Use of Outside Lenders, Long & Foster Pushes Own Mortgages, where she questions an email sent by Mr. Foster to all Long & Foster agents.

She wrote, “[The email] chastised his workers for funding mortgages through Bank of America more than 2,200 times last year [vs using L&F owned Prosperity Mortgage].” (more…)

  • 6
  • November
  • 2007
Posted in Buying Risks. | 48 Comments »

Beware of Inflated Appraisals: 1st Major Lawsuit

When two of my blog readers send me WSJ articles on the same day, you know something big is up.

Appraisals 101: An appraisal is a report that is supposed to be a 3rd party impartial review of a property (usually under contract) to make sure the price is in line with recent closed sales (not counting houses still “for sale”). This protects the bank from (more…)

  • 5
  • November
  • 2007
Posted in Buying Risks., New construction tricks | 21 Comments »

New Construction Bargains: Risks or Rewards?

Many Virginia condo builders have bailed before completion of their projects, voiding thousands of contracts (see: Arlington Condos Trend: Back to Apts). Meanwhile, other builders, including single family home (SFH) builders, decided to plow through the rough market.

Earlier in the year, builders (condos and SFH) were finding buyers were backing out of new construction contracts. Some left 2-7% deposits on the table, some fought for their deposit (ask for specifics). Can you blame them? If a property has dropped $70,000 and you put a deposit for $20,000… um, I know that stinks but why not just leave your deposit on Monday, and go in on Tuesday and buy another one for less?

So now the builder has inventory that they need to move and fast! The liquidation sales are here! And “These prices won’t last!” But are they a good deal? I’ve said before that (No Such Thing As a “Good Deal”) but now I want to specifically look at new construction homes.

The decision is VERY (more…)

  • 28
  • September
  • 2007
Posted in Buying Risks., New construction tricks | 9 Comments »

Builder Tricks Part 3! Independent Appraisals & Fiduciary Duty

Frankly, builders are in a heap of trouble with excess inventory! (Just take a glance at Brian Brady’s mortgage blog for more details.)

So with this trouble comes questionable practices in order to unload properties. Get a Realtor (the price is built into the condo, you won’t get a better deal without one) to represent YOUR best interest.


I already called out one Arlington Condo builder (more…)

  • 22
  • August
  • 2007
Posted in Buying Risks., data manipulation, New construction tricks | 15 Comments »

“Round Robin” Buying System. Unearthing The Desperate Seller.

Frankly, buyers say they want a good deal, but oftentimes they aren’t willing to go through the emotional roller coaster the buying process can put them through. A good Realtor will try to shelter the buyer from stress, but inevitably it is up to the seller and their threshold for being aggressive.

For the most part I don’t really believe in the idea of a “Good Deal” (more…)

  • 21
  • August
  • 2007
Posted in Buying Advice, Buying Risks., Don't Miss Best Of | 22 Comments »

Builder: Guaranteed Lowest Price* WITHOUT THE ASTERISK

The first builder I noticed offering “Pricing Guarantees” was The Park At Courthouse. I thought the idea was brilliant. A promotional plan that would give buyer’s some security in their preconstruction purchase, in case prices dropped.

So in theory, if you bought a place for $400,000 and a few months later, that exact or similar unit dropped to $390,000, you would get (more…)

  • 17
  • June
  • 2007
Posted in Buying Risks., New construction tricks | 17 Comments »

Subprime Loan or Nothing? Pick Nothing!

A subprime loan is a loan given to people with low credit scores. Those loans are either:

1) At a much higher interest rate, or
2) With closing costs and/or points through the roof.

  1. Either way it is highway (more…)
  • 7
  • June
  • 2007
Posted in Buying Risks. | 22 Comments »

60 Minutes: Redfin Saves $27,000 vs FranklyRealty.com Client Saves $152,000!

Last week 3 people texted me (or would that be “text me”)
saying “Turn on 60 minutes,” yet I missed it! (see it)

America was lured in by the… 20 year long regurgitated story “Attack on the 6% Realtors” and comments about “saving thousands.”

After watching such a biased infomercial, of course Redfin seems like a no-brainer. Well my blog readers have a brain (more…)

  • 24
  • May
  • 2007
Posted in Buying Risks., Don't Miss Best Of, Listing Advice., Realtor Rebates, Redfin | 25 Comments »

Beware: New Constructions Illegally Not Disclosing Seller Subsidies

(Thank you to MRIS for warning agents about illegal MLS fudging, perhaps due to BusinessWeek’s story that referred to my blog. More at the end)*

Now I have reported to MRIS another violation.
Lets see what they do about it.

New Construction Fudging the Reporting of Seller Subsidy… how conveeee….enient.

Before I get started on tricks that the builders are using to unload inventory, did you know that it doesn’t cost you anything to have a Realtor represent you? The cost is the same to the buyer, oftentimes the on-site sales agent gets the double commission. Sometimes a “free” buyer agent can save you even more, even if you think you already squeezed $100k out of them, who cares, if your buyer agent knows they recently dropped a place $200k around the corner. Price drops are relative, and a good Realtor can help protect you. See I Need A Buyer’s Agent! But For My Car.

So back to builder fudging. On the MLS, when a listing closes a Realtor must enter in the closed price. This can easily be verified by the tax records once it comes out. A Realtor is also required to post the seller subsidy amount. The “seller subsidy” is the “cash back to buyer” or “cash toward closing costs” and it is a marketing scheme to make a listing look more favorable, even though I tell my buyers to ignore them and just to net everything out. A $515k place with $15k back should be viewed as a $500k. Don’t let that marketing confuse you.

  • Damn side note: I once had a listing for $325,000 and an agent said “but the developer is offering an amazing $15,000 in incentives, will you match that?” The builder’s price was $350,000. I said “Sure. I’ll double it! I’ll give you $30,000 back with a price of $355,000, Deal?” So make sure you NET everything out!

Anyhow, the builders are in a bad situation right now. Especially Arlington County condos in Virignia. They have already sold a ton of units at a great price, but they need to sell the rest of their inventory without pissing off the current owners and people under contract.

So how do they do this?
Well one way is through fudging the “seller subsidy”. If a place is $600,000 and they want to drop the price to $580,000, they will instead give $20,000 worth of “seller subsidies” or “cash back.” Effectively the sale is $580,000, but it gets recorded in the tax records as $600,000 (which is fine). The part that is not fine is they are leaving off the subsidy information on the MLS. Insert Dr. Evil’s voice: How convenient!

How do I know they are fudging the MLS?

  • The graph to the left shows one builder’s last 40 sales. Not one included a seller subsidy. Meanwhile I have been in their sales office. As with EVERY builder, they give huge seller subsidies. Yet not one is posted here, as required by the MLS.
  • The box on the right side of the graph are 50 Arlington Condos sold in 2006. About 40% have seller subsidies.

Why does seller subsidy disclosure matter?
If you are considering buying a $500k condo in Arlington, you will look at the past sales as one of a dozen metrics to value a home (I wish I could show all my tricks on pricing and offering on homes, but the competition might be reading this, email me if you want a sample). If the builder just sold a nearly exact unit for $500,000 and recorded no subsidy, you might actually consider buying the unit near $500k. However, if you knew that there was $20,000 cash back, and the net price was actually $480,000, that is basically a Honda Civic value of information ($20k).

So in conclusion, make sure your buyer agent knows the market well and knows about tricks like those and other listing agent tricks that could cost you $20,000.

For all those super smart people that think like my Mom (read Mom Blog on not trusting Realtors) did “I don’t need no stinking buyer agent,” this stuff happens all the time. (shameless plug here: sign up to get emails of new blogs, the sign up box is at the bottom)

And you all think all we do is push paper and get you to buy quickly?

– Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don’t like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

Videos at YouTube.FranklyRealty.com

*Thank you to MRIS continued: I would like to thank MRIS for warning agents about MLS fudging.(the local MLS system) for posting a bulletin board on Matrix (the back end Realtor system) warning listing agents that Data MLS fudging is illegal and will not be tolerated. I believe my MLS Data fudging Blog (Part 1 and Part 2) and the resulting Business Week article probably lit a fire under them. While I wanted to copy and paste that notice, it wa
s gone after 24 hours. Oh well. Update: I found the link to the notice.

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Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor

  • 3
  • February
  • 2007
Posted in Buying Risks., New construction tricks, Shady Agent Tricks | 7 Comments »

"Don't Buy"? A Marketing Ploy? "I'm On To You Frank!"

A close friend of mine and fellow Realtor today said to me that he was “on to” me.

He said my blog seemed predominantly slanted toward telling people NOT to buy and that I must be using reverse psychology to trick people into BUYING MORE in order to become insanely rich! He went on to say that there was no way I really ever talked people OUT of buying, as that would be crazy, and I’d become poor quickly.

Is he right? Yes. But for which part?

Yes “Don’t Buy, Ask Why” is a marketing ploy. You got me!

Why do I do it? The public has been brainwashed with the honors, riches and glories associated with home ownership. Some of the myths are decades old (when it was true) yet still regurgitated today, like “Stop throwing money out the window on rent” or “Making your landlord rich.” or “I need the tax break.” (Read: Buying Myths) 99% of Realtor websites give you this sales pitch hoopla, when in fact , when you run the numbers it might not be better to buy for you.

The purpose of this series of blogs is to debate you. Play devil’s advocate for you. Challenge your reasons and make sure that you understand how huge of an undertaking this is and make sure it is the right choice for you. Rather then selling you on buying, I question your reasons. If in the end you have good reasons and you still want to buy, great! I’ll be there ready to help you. Heck if you have dumb reasons and you still want to buy, I suppose I’ll still help you get the best deal possible.

(Side note: Just recently a buddy told me he was certain this was the bottom of the housing decline, and he wanted to buy a 2nd house. He had already lost $30k on one house that I warned him not to buy. I warned him about the risks and how he was essentially doubling down Vegas-style. But he is certain and wants to proceed. This same guy also buys penny stocks on tips from the internet. I love you buddy, but I’m sorry, that is gambling, not investing.)

No, I don’t talk people out of buying, but sometimes I help talk themselves out of buying.

I rarely, if ever, tell somebody flat out, “You should not buy.” Who am I to tell them what to do? Who am I to predict the market (Read: Stockbrokers Can’t Predict Stocks, Realtors Can’t Either!). I don’t know their risk tolerance, their investment goals, their long-terms goals.

What I do see too frequently is people buying for the wrong reasons or thinking Real Estate is a sure thing (this debate was harder 2 years ago when I gave out shirts saying “I just bought during the housing bubble” as featured in the WSJ)

Here are a few real life examples of people that did NOT buy after a chat with me:

  1. Chris, Arlington Va. He was fine renting but was looking to buy because it just seemed like the right thing to do. He had saved $50k and wanted to invest it in real estate while living in his new home. Kill two birds with one stone. Oh, and the tax savings. We went over the numbers and his overall plan.
    It turns out that he owned a great business, two profitable stores and was saving up to open another store. I then explained that he was lucky in that most people buy a house in part because they don’t have alternative investment options. They invest in stocks or CDs.
    He on the other hand had what is called an “opportunity cost” that he needed to consider. If he bought this house, how long would that delay opening another 1 or 2 stores and ultimately would it make him less money? Even if the house went up he would do better investing in his stores. He decided NOT to buy. In this case the housing market dropped $100k in the neighborhood that he liked, so not only did he save $100k, he had that money liquid so he could invest it in more stores for a larger return.

  2. Stephanie Oakton Va. She called me to help her buy a $450k house. The same ole tax reasons I always hear. A friendly Realtor had given her a company issued flyer on why she NEEDED to buy and buy fast! “Renting was stupid.”
    It turns out that she was fairly certain that she would be moving out west in 18 months. I ran the numbers for her. I first showed her that even after the tax savings, it still was cheaper to rent and then after those darn Realtor fees and closing costs, the market would have to rise by XYZ just to break even, let along the risks of the market staying flat or going down, (Read. I’m Upside Down, What Should I Do”). In the end she rented. 18 months later the house she liked has since dropped $50k in value and after Realtor fees she would have been wiped out. Meanwhile the Realtor telling her to buy would have been on her second trip to Tahiti with that commission by now.

  3. Sue Fairfax Va. She wanted to meet me for lunch to discuss buying a new construction as an investment. I said I would join her, but that she would have to buy me lunch since most likely I would be talking her OUT of buying. Her goal was to get rich like 3 of her friends who sold a place for $350k that they bought for $250k a year earlier. Since she was going overseas for a year, she would come back to these riches. I then burst her bubble and told her that the olden days of builders offering deep discounts (20% off) coupled with a market appreciating 10-15% were long gone. When you hear about taxi drivers chipping in their life savings to buy a new construction, you know “the gig is up” (that was my quote in a WSJ Dec 05). She didn’t buy, I got a free lunch.
    The project she liked is now selling for $50k lower a year later. Even if the market was going up, her expectations were that it was a “sure thing” when really it was more like gambling in Vegas.

Those are just a few of the many examples of people buying for the wrong reasons.

How are you not poor?

You know what they say… “You catch more flies with honey than you do with vinegar.”, albeit a cute phrase, it isn’t relevant here. Instead, I figure for ever person that I help walk through making the decision NOT to buy, they hopefully in return will recommend me to 3 or 4 other friends looking for a Realtor that won’t pressure them into buying. Ultimately buying will be right for one of their referrals down the road and they will buy and that will make me rich!

So to my buddy that figured out my marketing ploy, how do you like my plan now?

Shameless plug coming, beware… To recap, our approach is less as a salesperson trying to talk you into buying and into a commission but more of a consultant role helping show you the pros and cons to make sure buying is right for you. Follow what my mother taught me: Don’t Trust Realtors That “Sell” You On Buying End plug.

I hope you enjoyed this post, if you wish, you can sign up for occasional spam-free emails of my new blog posts. The sign up box is on the right of the page. Also I encourage you to send this blog to friends that are considering buying and leave comments.

Also leave comments if anything on this blog has led you to think twice about buying.

Can I talk you out of buying a house today? Call me (actually email is best, click over to FranklyRealty.com).

– Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
Featured in BusinessWeek, WSJ, NY Times, CNBC, Washington Post etc

Videos at YouTube.FranklyRealty.com
Keywords: Housing bubble? Arlington, Alexandria, mls, homes

  • 24
  • January
  • 2007
Posted in Buying Risks. | 7 Comments »

I Need A Buyer's Agent! But For My Car.?

So I want to buy a new car. I want a convertible Saab, used of course. Somewhere between 2004 and 2006.
I have been pretty dead set on it for about 6 months now. I even have the financial means to buy it.
Why won’t I buy one? Just because I hate the process! How silly is that?There are several out there through dealers, but when I go into the dealership, I don’t get a warm and fuzzy welcome. I instead get a salesperson. I see him in a similar light as most consumers see Realtors. I don’t trust him.

In part because of my background in Real Estate, I know that there is a ton of insider knowledge (which I try to expose in this blog) that I don’t have. AND I DON’T LIKE IT! I know he looks at me like a chum, and oftentimes his bonus will be directly attached to how high a price he can get from me (I could be wrong about their compensation, but that is my perception, probably from a friend that worked in used cars 5 years ago). I’m even at a point in my life where I don’t mind people making money, I just don’t like not knowing what they are making and I don’t want to be the sucker that overpays.

I wish I had a buyer’s agent… for cars.

  • Somebody that I could pay (wouldn’t it be great if the seller paid… nah, not really, it all ultimately comes out of my checkbook one way or another).
  • Somebody that has the insider information and can help me get the best deal.
  • Somebody with the insider connections and the know how.
    I might be a brilliant lawyer (I’m not) or a genius doctor (I’m not), but without doing it day in and day out, I am at a disadvantage, no matter how smart I am, or even worse, how smart I think I am.

I know there are car buying guides and websites, but still, I want more of an inside scoop? Carmax? Maybe. I understand their prices are fixed, but then I heard they aren’t the best deal.Kelly Blue Book? Yeah right, a book created BY the car industry based on numbers that are submitted by the dealerships, with no proof. Sound familiar? Every dealer is suddenly selling “below Kelly BB”? How can this possibly be? Who is selling way above KBB in order to allow so many to pay under KBB? I don’t trust it.

So I did it! I hired a Used Car Buyer Agent.

A client of mine is a Saab enthusiast and he bought his car through an auction via an agent that he trusted, and a friend had used. He got a great deal and highly recommended him to me. No, a really good deal, not the “good deal” that every dealership brainwashes you into thinking that you got when you pushed them down $2,000.

But, do I have a car yet? No. Why? In part because my agent isn’t good. For one he doesn’t use email (and probably not the internet, so I won’t be worried that he will read this), and my phone calls get left with his nice wife. A ton of other reasons, but it hasn’t been an experience that I could recommend to others… yet. I’m still hopeful. I think I will call him yet again today.

Unshamelessly blatant non-subliminal plug: The above is an actual true story. Yes it is meant to highlight why you should have a great buyer’s agent for a house, and not just somebody that your mother plays cards with, or happened to be sitting at an open house. A buyer’s agent shouldn’t just be a pencil pusher. Not only do you need somebody that will fight for you, you need somebody that is responsive. And somebody that won’t talk/push you into buying. Instead he will show you all the options and give you the pros and cons for you to make the final decision. You all are lucky because you have that option, meanwhile I’m Saab-less. End plug.

Does anybody know a good buyer’s agent for cars?

Update: Posting coming soon about the Exclusive Buyer Agency Agreement, whether to sign it or not.

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

Please report any typos.
Videos at YouTube.FranklyRealty.com
Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Realtor

  • 17
  • January
  • 2007
Posted in Buying Risks. | 6 Comments »

Stockbrokers Can't Predict Stocks, Realtors Can't Either!

When you hear a Realtor telling you that the market will go up, don’t believe him/her. He makes money if he sell you on buying, and he will be long gone if you lose your shirt. Meanwhile since 2004 I was giving out shirts that said it was probably a bubble:

Sure Realtors might be able to see a 1-3 month window and mini-trends like what happened in Arlington when there were 10x the number of units on the market versus the year before. A high school Supply and Demand class could see that coming. But besides that, we don’t really know.

Why don’t we know? Well it isn’t just us, it happens with all investments. Stocks, Oil, Gold etc. Sure some people are quoted for being dead on, but how many were overlooked and were way off? Most.

I came to this approach when I was reviewing my mother’s finances. She had a ton of individual stocks. Some skyrocketed, some tanked, etc etc. And then she had these mutual funds. I looked into them and read fool.com, they like to expose investment myths.

I found that 75% of the time, these funds didn’t even beat the index! , the average of the stock market (S&P 500). So a fund manager gets paid $500,000 a year to pick stocks and charges a 1-2% per year management fee and only 25% of the time they beat the average? Um, I’ll just take the .01% no cost index fund and if I want to invest in stocks, I’ll be fine with the average. Far lower risk, lower fees and an average return (or far above average if you compare it to beating 75% of mutual funds) Disclaimer: I’m not a financial adviser, have him tell you this stuff.

So if money managers can’t predict stock values, how can we be expected to predict the short terms direction of the housing market? We can’t just look at data since I can find you 5 reports saying things will go down, and another 5 reports saying it will go up. Both make great arguments.

So what do you do?

You stop making your home purchase all about being an investment!
Instead, if you decide to buy, buy what you like and plan to live in for many years, and if you make money after a while, great, more power to you.

New thought:
When a stock brokerage company shows charts on what the fund has done, why are they required to put a disclaimer that “Past performance is not indicative of future results.”? Yet NAR and Realtors never once during the bubble thought to use this type of disclaimer.

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

Videos at YouTube.FranklyRealty.com
Keywords: Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor

  • 16
  • January
  • 2007
Posted in Buying Risks. | 4 Comments »

Q:"I'm Leaving For 3 Yrs, Should I Buy An Investment Now?" A: Start with NO.

More specifically the question was:

BUYER: I was looking to buy a condo in DC this month for around $300k. I just found out that I’m going overseas for 2 or 3 years. Should I buy a place today as an investment property?

FRANK: Do you hope to move INTO that property when you come back or are you investing with hopes that it will go up and you can use the new funds to buy a bigger place?

BUYER: Can you go over both?

FRANK: Sure, the quick answer is No to both. While it is far less risky if you plan to move into it.

BUYER: But Frank, your Blog repeatedly says you didn’t like to give opinions, and instead prefer to give the data and work together.

FRANK: I know, but sometimes I just can’t help myself in such clear cases. Oh, ok. Let me rephrase my opinion and break your question into two. It isn’t a no-brainer, but if after reading the below information you still want to do it, great, go for it!

Question 1) Is it a good idea to buy a place today as I’m going overseas for 2-3 years. I will sell it when I get back and use that profit to buy a bigger house.

Typical Realtor answer: Hell yeah! (Internal monologue: No risk to me, I make 3 transactions out of it: 1) Help her buy, 2) help her sell and 3) help her buy a bigger place). Do it!

Frankly answer. If flipping and rehabbing aren’t your main line of work, you’d be risking a ton, but there is a chance you’d get rich. Think of it like Vegas.

You know how with mutual funds they have disclaimers that say “Past performance is not indicative of future results”, why isn’t that used in Real Estate when showing huge historic gains?

Yes in the past people have made a killing in such a short period and heck I can show you 5 reports that will say the market will go up and another 5 saying it will go down. So nobody knows for certain. But what I do know is that with a timeframe that is that short, you are gambling, Vegas style.

    The CONS data:

  • If you were to rent it, you probably wouldn’t cover your mortgage every month. So you would be losing $400 a month or taking a $5,000 loss each year that you rent. After 3 years you are $15,000 in the hole. (please allow for rounding)
  • The headache of being a landlord, especially if you are new to it, and from overseas. Ok pay somebody to do it, but there goes another $5,000 at least! Subtotal is $20,000.
  • Then when you sell it you will have Realtor fees and closing costs. Lets just say $20,000. Now you are $40,000 in the hole.
  • The tax savings are minimal (ask your accountant) and aren’t the same as living in the home since you get rental income (which isn’t enough to cover the mortgage).
  • Opportunity costs. Your money could be making 5% in the bank. Assuming 10% down, that $30k in 3 years in the bank at 5% or roughly $5,000 or $45k total.

So from day 1 you are $45,000 in the negative. Over three years the market would have to go up almost 5% a year to nearly $345,000 just to break even! Will it do that? Maybe, nobody really knows. It did in the past!! But if the market stays flat, you have lost $45,000. If the market slides another 10% (3% per year), you would be under $75,000 ($45k+30k) or over 2 times your investment!

Only the buyer can ultimately weigh their risk tolerance, but that seems pretty risky to me, but again, you aren’t me, and it worked in the past, so it is your call. Heck, I’d love it if you bought a place, got rich and shoved this blog in my face in 3 years. I just want to make sure you see that the downside risks are real and could happen.

A buyer should do their analysis under 3 scenarios regardless of everyone’s predictions:

  • 34% chance of the market staying flat
  • 33% chance of the market dropping 5-10%
  • 33% chance of the market going up 5-10

Other buying now factors to consider:

  • CON: A loan for an investment will be higher than for a residential property.
  • PRO BUYING NOW: Interest rates might go up in 3 years, thus making it more expensive per month to buy (but many will say that higher rates will further drop prices so it is a wash).
  • PRO BUYING NOW: Yes, you could miss out on another historic run up and become rich. Just blame your Realtor!

BUYER?: 2) Ok, I’ll think about it. Well what if I want to move into the house after I come back?

FRANK: Much of the analysis above would still apply, minus those stinking Realtor fees. So remove that $20,000 and it isn’t AS risky, and MAYBE even a good idea, but I wouldn’t say a “no brainer.” But it isn’t my brain, it is yours. It all depends on where the market goes and how SURE you are that you will a) come back here and b) want to live in that one place. It seems like a lot of variables would have to line up perfectly for you to come out ahead, but that is your call.

Remember NAR has said “this is the bottom” several times. If it is, you could become rich! If it is goes down, you still might be ok if you hold it long enough. And that could be an additional 3 years or as much as 10 years.

Good luck, let me know if you have any further questions

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

  • 10
  • January
  • 2007
Posted in Buying Risks. | 2 Comments »

Leverage, The Untold Risks With Buying.

This post was more relevant during the bubble of 04-06, but still kind of applies today. I’m not saying not to buy. I’m saying that you need to fully understand the risks involved. Sure people have gotten VERY rich on Real Estate, but you rarely hear about those that go bankrupt. They tend to be less vocal.

People think that “buying bricks” (a house) is far less risky than the stock market. Heck look at the Nasdaq that dropped 70% after the .com bubble! That can’t happen with a home, how can it lose 70%?

Well if you put only 10% down, it pretty much happens on day 1!

How? Why? One major difference (stocks vs houses) is being ignored…


Lets take a $500,000 home as an example. If a buyer puts 10% down, or $50,000, that leaves them with a $450,000 loan. Because of leverage (using 90% of the banks money to buy your home) all you have to do is close on your house, and on day 1 you have recreated the Nasdaq 70% drop! Since that same day you have lost about 7% (closing costs plus those rascally Realtor fees) in value. That 7% drop in your house value is the same as a 70% drop in your investment (you put 10% down and 7% is gone, that is a 70% drop)!

Just like they say about used cars, the moment you drive it off the lot, the car drops $5k to $25k in value immediately.

Scared yet?

I’m not trying to scare you. If you are asking “then why does anybody buy,” the flaw in the scenerio above is that people usually don’t sell their house after holding it one day. And unlike cars that depreciate, houses tend to go up in value… But not always.

And with appreciation and leverage you can make a killing! One client was saying how she put down 10% and bought a $150k condo. And 4 years later sold it for $300k. She was saying how she had doubled her money! Actually since she only put down $15,000 (10%) she turned that into $150,000 and actually made ten times her investment, a 1,000% return!!!! Party time!

So LEVERAGE significantly increases your profit if things go up, but it can wipe you out if things go down. That is why it is recommended to buy only if your time horizon is long enough. The longer you hold a place, the LOWER your risk (usually). I do however know somebody that had to hold a condo for 10 years just to break even.

There are a ton of statistics out there showing that Real Estate is the #1 fastest way to riches.

So I gave an example of a buyer that made 1,000% (and actually over the last 4 years that was fairly common), but what you never hear about is the down side. Here is one example:

Now an example of a bankruptcy and $150k loss:

“Evelyn” was encouraged by her brother to buy a condo conversion (apartment complex that was upgraded and sold off as new condos). The pitch was “This is DC, DC can never go down! Jobs, government, etc. Everyone is making $100,000 in 1 year and it is a sure thing. The sister said she was very conservative and worried, but still decided to buy a $600k condo in Ballston. She put down “only” $10k-$20k.

She put it under contract a year earlier, closed on it and 9 days later went to flip it! Starting at $665k! She would pocket $30k after fees and double her money! Champagne all around. But it didn’t sell.

This is where I came in. I got a call from a friend that referred her to me. Why? Supposedly the Realtor “stunk.” I didn’t take the listing, it seemed way overpriced.

This is an actual email exchange we had:

    “Frank, it was good speaking to you. Your resourcefulness and dedication is what we need to sell [condo name]. We look forward to hearing from you.”

This is my actual reply after looking into it in 10/2005:

    “While I’d love to bash your old Realtor, I can’t. Nothing has gone under contract in this building so there is no precedence. He didn’t know what it would go for, since nobody knows, so he worked backwards to try and make you some profit (which is fine).”

Thank God I didn’t take the listing!

    It continued to drop. Here is the timeline:

  • Paid $600k, tried to flip it 9 days later.
  • $665k to $645k over 51 days
  • $575k to $540k over 104 days (new Realtor, gotta be the Realtor’s fault right?)
  • $520k to $485k over 126 days
  • Taken over by the bank at $580,000
  • Sold for $465,000
    With about $35k in mortgage payments.
    That makes for a loss of $165,000!

Real Estate is NOT a sure thing.
People can make millions quickly in Real Estate.
People can quickly go bankrupt in Real Estate.

    I suggest running the 1/3rd Buyer Scenerio analysis.

  • 1/3rd chance of the property going down
  • 1/3rd chance of it staying flat
  • 1/3rd chance of it going up.

If you have run the numbers and understand what COULD happen, then consider proceeding.

Shameless not so subliminal ad coming… Keep in mind that one way to lower your risk is by getting an agent that will help fight for that extra $5k or $50k when helping you buy a place.

Love to hear your comments.

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

Videos at YouTube.FranklyRealty.com
22314, Fairfax Va, DC Realty, Realtor

  • 7
  • January
  • 2007
Posted in Buying Risks. | 10 Comments »

Tip #1 From Mom: Don't Trust Realtors That "Sell" You On Buying.

I learned my approach to Real Estate from my mother growing up buying homes (insert “awe” here).

A Realtor’s job shouldn’t be to talk people into buying. However too frequently you’ll hear Realtors saying “Now is the time to buy” or “We have reached bottom.” Maybe they believe it, maybe they are brainwashed, or maybe they are lying. Irregardlessly* in reality Realtors don’t know where the market will be in 1 month, 1 year, 5 years or 10, and don’t believe somebody whose pitch is always the same… UP! (*yes that is a made up word to see if you were paying attention)

What many Realtor know is if they can convince you to buy, they might make another sale! More Sales = More $ for the Realtor

One lesson stood out most from my mother…

On a sunny spring day in 1995, my mother was working with her Buyer Agent Realtor, about to put in an offer. The Realtor kept looking over my mother’s shoulder as she was deciding on a price to offer on a house. The Realtor was not the Listing Agent, but her Buyer Agent (supposedly looking after her best interest). The Buyer Agent Realtor kept saying in a “salesy” fashion: “$XYZ would be a great price!”, or “You will make a ton in 2-3 years!” and “You should put $XYZ!”

My mother stopped her and said, “Let me ask you some questions,

  1. “You will make money if I buy this house right?”
    The agent replied “Yes”
  2. “Will you be sharing in my risk if this property goes down?”
    The agent replied “Sorry, No”
  3. “Will you be making more money, the higher this offer is?”
    The agent replied “Yes”
  4. “Is the % likelihood of this deal being accepted go up with every $5,000 higher that you recommend we put in here? And thus the more likelihood of you getting paid?” The agent replied “Yes”

    “Then please be quiet and let me think.”
    (she probably wasn’t as nice as that).

Warning, blatant subliminal sales pitch approaching: When it comes to price, a Realtor’s job should be to delivery information, not suggestions.
The Realtor might use their experience and compare the bidding process to a trip to Vegas and say “at this price you might have a 25% chance of getting it, at this price an 80%”, but when asked “What should I pay?” a Realtor shouldn’t answer that since they have a bias and it isn’t their money. Only the buyer knows their risk levels, how the monthly payments will feel, and how much they love the place.

Don’t get me wrong, a good Realtor can help you get a lower price (ask for some testimonials) and come up with a strategy to do such, but they should not say “If I were you I would bid $XYZ.” Trust me (never trust anybody that says “Trust me”), the higher the price, the easier the job. Fighting to get that last $5k or $10k is the toughest part*, but important especially if the market goes down more, you’ll be glad you fought for that last $10k.
(*Note that some people would rather just buy at full price and have an easy transaction, we can do those too, whatever is important to the buyer.)

I can’t really list all the insider buyer agent techniques on a public Blog being read by my competition, but one example would be to not stop at finding one great home, but finding 2 or 3 houses and taking a “round robin” approach. Offering a price on one, and if that doesn’t work, bid on the next one, then the next and then back to the first with a slightly higher price and repeat as necessary (are you really supposed to “shampoo and repeat?”) until somebody bites.

And lastly, don’t trust any data from NAR, The National Association of Realtors. Just don’t do it. Ignore it. As Peter Coy wrote in Jan 8th’s BusinessWeek, NAR said on 12-12-05 Prediction: “The national median home price will rise about 6.1% in 2006. Over a full year, it has never declined since good record keeping began in 1968”- NAR. This was followed up by “The Reality: Through October (06), the median price of residential properties was down 3.5% from a year earlier.” (Actually probably more like 5% when you include seller subsidies, see earlier Blog on MRIS data.)

Yes they can make one mistake, but the NAR president repeatedly says we are at or near the bottom.” My earlier Blog exposes a NAR advertisement that says now is the time to “Buy Or Sell”, while only listing reasons to buy. How can one time happen to be perfect for both sides? I’ll tell you, when money is involved and it flows to the recommending party, that is how. Also the data is manipulated (see MRIS data report Blog).

Here was the T-Shirt that I was giving my clients at their closing. Even when buying a $3M house. This proves that I warned them about a potential bubble:

The 2004 version was featured in a Article (near end).
– – – – –

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

  • 6
  • January
  • 2007
Posted in Buying Risks., Shady Agent Tricks | 16 Comments »

"Don't Buy, Ask Why." Buying MYTHS explored.

Make sure if you are going to buy, that you buy for the right reasons.

YouTube Preview Image

Don’t be tricked or manipulated with the common myths that you might hear from Realtors on buying.
Here are some MYTHS covered in the video below:

  • “You have to buy for the tax savings”, or the
  • “What, you want to make your Landlord rich”
  • “Buying in DC is a no-brainer, things can never go down”
  • “I’ll just rent it if I can’t sell it”

Also read this article that I helped gather information for from the New York Times: Is It Better to Buy or Rent?

– Written by Frank More at YouTube.FranklyRealty.com

  • 21
  • December
  • 2006
Posted in Buying Risks. | 16 Comments »