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06-20-2009 |
This week Bruce is joined by John Mauldin from Millennium Wave Investments. John is a New York Times best seller author, and he is the writer of ?Thought from the Front Line e-letter?, which goes out to 1.5 million readers every week. He is frequently interviewed on TV shows around the world. Bruce begins by asking John what his company does, and who his typical client is. John helps investors find investment managers that will work best for them. John has a new series of books called ?Eavesdropping on Millionaires.? Bruce asks John what has surprised him most about wealthy individuals. John says that he was surprised by how many of them felt a need to be in the market, and how many of them have rode the market all the way to the bottom. They did not have a sense of preservation. They did not understand they had won the race, and that they could stop running. They could have lived a comfortable lifestyle, but they continued to invest, and they have lost a large amount of their net worth. This is unlike anything we?ve ever seen. From here we are creating a new ?normal.? This time it really is different. We?re watching a new generation become frugal. Savings rates are increasing from 0% to 5%. Bruce asked John if it is more painful to go backwards financially then to have never been there before. John thinks that it is. John found some stats from David Rosenberg showing that people 55 years and over have seen an increase in employment. John says that people need to be careful when they are listening to people who are anticipating what will happen in the financial future based on what has happened in the past because the underlying forces in our current market are much different than they were before. Statistics also say that the boomer generation has not accumulated any wealth for 12 to 15 years. Bruce asked John if most people become millionaires because of earning power or investments. John says that everyone has their own path. A large number of people who become financially successful are good savers. Many of them save 20 percent of their earnings. Most lived a frugal lifestyle and saved diligently. The number of people who made money investing is not as big as you would think. John?s company has surveyed 17,000 people, and they have found that it is harder to become a millionaire through investing than it seems. Ludwig von Mises once said, ?It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.? When Bruce looks at how we are solving the crisis that started in 2008, he wonders if we are hurting our future by what we are doing. John thinks that in the short term, the answer is ?no? but people disagree with him. The problem we have started 15 years ago when we started leveraging ourselves and we started selling securitized mortgages that were not going to be paid. We have a certain amount of deleveraging pain that we are going to have to go through in order to get through this problem. We can do it in one year or ten years. One year means 25 percent unemployment and breadline depression. If we work through this problem over 10 years then we will experience slow growth, 10 percent unemployment, and difficulty in recovering the stock market. John would rather take the longer route. John thinks that the Fed did the right thing by stepping in and putting liquidity into the market. People associate credit with cash which it is not. The level of credit that the world is using is imploding. There is far less credit to finance our future. The Fed can print money right now without creating too much future inflation. Someday they will have to stop and they will. John thinks that the stimulus package idea was not a bad idea, but the way that we have created it and used it is wrong. We used the stimulus package to finance political objectives rather than actually doing things to stimulate the economy. We are borrowing money that our grandchildren will have to pay instead of building infrastructure they can enjoy. We are planning on going into debt $1 trillion dollars per year for the next ten years but you cannot finance that much money that quickly; there are not enough takers. We were running a $700 billion dollar trade deficit, but that money came back and was invested in some sort of debt. That allowed us to create a large deficit, but now we only have $300 billion dollars worth of trade debt, which means that we have to go out and find $1.7 trillion dollars of money to buy more bonds. John thinks that we will probably raise taxes. John says we could suspend all these new projects like healthcare like Republicans but there?s no chance that will happen. If this were the path, the dollar would become stringer but we?d still have to work through deleveraging and the housing problem. But, it doesn?t destroy the dollar. John feels the current administration?s solutions will only work for so long. The bond market will implode eventually if this keeps up and it?s an ugly scenario. If there are a enough democrats that come along that agree that the huge deficits aren?t good, taxes will roll out to keep paying for these programs. As long as the deficit is growing as fast as the nominal GDP. John thinks out of these scenarios the last solution will result. Bruce asks John if he thinks that we have seen the bottom of the housing market. John does not think we have. He thinks that housing problems will continue through 2010. We have more foreclosures coming. If you are at the point where you would like to buy a house, this is a great time to do so. More coming next week. Visit thenorrisgroup.com or John at johnmauldin.com. |
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06-13-2009 |
This week Bruce is joined once again by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services where she handles bulk sale purchases. Bruce first asks Shelley if lenders generally fix the properties when they sell them. Shelley says that it depends on the market and the lender but usually fixes her properties. She does not want to bring the prices of a neighborhood down; she wants to enhance a neighborhood. She knows a large number of other agents who work with lenders to fix properties and they make a lot of profit that way. When you support the value of a neighborhood, you also enable some people to get a refi instead of losing a property. Everybody wins when people fix properties. Bruce asks Shelley how REO agents feel about auction companies. For the most part, the auction companies and agents are working in a partnership, and in many cases, the agents are still earning a commission. In the past, if a property went to an auctioneer then an agent would not be paid. The agents do open houses for auction companies, and they bring in buyers. In the 1990s, the agents didn?t make a commission so this time is much better. The auction company couldn?t function as successfully if it weren?t for the agents who are also bringing the buyers. Bruce asks Shelley how REO agents feel about investors. Most good REO agents have a pool of investors that they work with. The problem that agents have is determining who is an investor and who is not. Real investors are easier to work with because they understand the market place, and they are not unrealistic about property values. Agents like working with investors because they know what they want and they understand how lenders do business. Most investors will close quickly. One of the dilemmas that agents have with wannabe investors is that they do not check up on their properties, they do not understand what it takes to buy an REO from a lender, and they do not understand what they are planning to do with a property. Investors must need to know what they are doing and they must do their homework. In today?s market, an investor needs to be able to look at a property and quickly determine the repair cost and the appraisal to be competitive, because many properties have multiple offers. They must understand so many facets of the business from how much prices are declining to how much the house will rent for. Bruce asks Shelley if she thinks that short sales will be more attractive to the lenders now than they were in the past. Shelley thinks that they will be more attracted to short sales, because there is a lot of cost in processing a foreclosure. The biggest problem she sees with this is that loss mitigators are not experienced enough to understand what is occurring in the market place. Time is their biggest enemy. Bruce asks if loss mitgators, asset managers, and ever really talk before something goes to trustee sale. When Shelley worked at Option 1, she would talk to the loss mitigation department. They had formulas to determine how much they would lose in specific deals. Unfortunately, many of the people who work with loss mitigation do not understand the market. Bruce says The Norris Group has noticed a big change in opening bids at the trustee sales. They are making more sense. Bruce asks if people often communicate with REO agents, prior to trustee sales, to determine accurate prices before the trustee sale. Shelley says that lenders are always getting a broker price opinion. The biggest problem is that they do not get to see the property, so sometimes people give high bids. Lenders always consult with agents and get a BPO (broker price opinion) of some sort. Lenders pay around $45 to $50 for a drive by broker price opinion and $75 to $100 for an interior BPO. When agents do drive by BPOs they are determining the price by just looking at the outside of the house, so they do not know what damage there might be inside. Bruce says the paperwork is very much similar to that of an appraiser?s. Bruce asks Shelley if she has people in her company that are being affected by the new appraisal rules and the Home Valuation Code of Conduct. Shelley says that she does not know if agents are being severely affected by this new rule, but she does know that the closings are taking longer. They are also getting paid half as much for the appraisals when dealing with the new management companies. Shelley is glad that steps are being taken to prevent fraud but she thinks that these new rules are hurting appraisers. It?s important to have arms lengths transactions but the Realtors can sometimes point out subtleties in the market that appraisers wouldn?t get to on their own. Agents can actually help arrive at the proper price. Bruce feels that same about the appraisal issues and how they are affecting investors in the market. Bruce feels that these new rules are unfair because they assume that people who make deals quickly are looking for trouble. In reality, over 90 percent of the people who do their business quickly are doing so simply because they are trying to be efficient and helpful. Shelley agrees with Bruce?s feelings on this. Bruce saw a chart that showed that 35 percent of Option ARM borrowers are behind in payments, 72 percent of Option ARM owners owe more than their house is worth, and California has 58 percent of all those loans. Shelley says it is astonishing and there are also statistics say that those in loan modification plans often go back into default. Our government really hasn?t considered the whole picture. Bruce feels that there are many homeowners that are making their payment because that?s what they signed up for. But it will be important for prices to be supported within a reasonable amount of time and we won?t be saving everyone. We have had a 70 percent home ownership percentage, but historically that percentage has been around 62 percent. Bruce thinks that the home ownership percentage will go down to 62 percent which will leave a lot of vacant homes. Shelley thinks that we need to turn these empty homes into affordable rental units. If investors are buying these properties then they need to be careful not to raise rent. Bruce says that the market usually controls rental prices. If there are enough rentals then the price will come down, and that is occurring in some areas in California. Bruce asks Shelley what she thinks about shadow inventory. Shelley says that there is a lot of unlisted inventory out there. A lot of lenders have been told by their management that the burst of the bubble is coming within the next 60 days. She doesn?t know if they have been holding that much of the inventory or if the moratorium has caused the problem. The next 60 days she says she is hearing it?s going to explode. Bruce says in San Bernardino County, there were 40,000 trustee sales in 2008, and there were about 22,000 sales. Bruce asks if other states are looking at California?s situation and wondering why Californians are so worried. Shelley says that there are some states that have been hit less than others, but for the most part, everyone is feeling the same pain. Bruce asks if California is going to experience more trouble within the next 18 months, and if higher priced inventory will be affected. Shelley says that is true and that some of the higher priced inventory is going into the foreclosure market, and more prime inventory is going into default. Bruce says he hears advertisements for attorneys every day for loan fraud and workouts. Bruce asks Shelley if lenders are having trouble with people looking for loopholes. She does not know if there are many attorneys looking for loopholes, but there are attorneys looking to stop specific attorneys from doing this. Bruce asks Shelley if she was president for a year, what national policies she would implement to help housing recover. She would focus on creating jobs so that people can pay for their homes. She thinks that principalities and municipalities need to cooperate with buyers and lenders. Programs need to be set up so that people can work on properties and fix them up. More 40 year mortgages need to be put in place, so that payments become more affordable. She would also want less moratoriums being placed on the market so that the problems can fix themselves. Some people should have never been in homeownership to begin with. More incentives need to given to lenders who work with home owners. Bruce asks Shelley if it might be good to create a short term policy that would forgive foreclosures faster than before since this scenario got so out of hand. Shelley thinks that would be a good idea because people are losing their good credit. The government should really talk to the industry that?s at work so they understand what?s happening the in marketplace. For more information visit www.reomac.com. |
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06-06-2009 |
This week Bruce is joined by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services, where she handles bulk sale purchases. Bruce begins the radio show by asking Shelley what REOMAC stands for. REOMAC stands for Real Estate Owned Managers Association. It was founded in 1985 by a group of REO asset managers, who met during the California downturn in order to exchange business ideas. Originally the members were only asset managers, but now the group is composed of anyone who can compliment agents and asset managers. Because the market has significantly changed, the lenders are using other sources to help sell their properties. REOMAC membership has grown substantially, because networking is very important during these difficult times. Right now, REOMAC has stopped accepting new members because they are trying to reformat the organization so that people who want to join can get into the organization. The organizations bylaws say that the membership must be balanced so there are currently more agents that are wanting to join. There are currently four levels of membership that Shelley explains. The cost of being a member of REOMAC varies by category. The lenders pay $75 dollars per year, the outsource members pay $150 per year, and their affiliate and broker members pay $375 per year. REOMAC holds about ten to twelve meetings per year around the country and they also have two conferences. Their most recent conference was in Rancho Mirage, and over 2,500 people attended. Bruce asks Shelley if REOMAC also has members that deal with commercial lender-owned properties. Shelley just implemented a commercial committee this year because REOMAC knew that as the market turned around that would be another phase of default. In their last conference, REOMAC had a session on commercial real estate, and many people were interested. Bruce feels that commercial real estate is going to be the next market to get hurt. The agents who are prepared for this market will have a lot of business. Shelley agrees that agents need to be prepared for the commercial market because the down economy is affecting every area of business. Bruce asks Shelley if REOMAC has its largest number of members in California. Shelley says that California does represent its largest member population which is partially due to the fact that REOMAC started as a California organization. When Shelley joined REOMAC in 2001 there was not much business going on with lender owned properties. Subprime loans were going crazy and people were recognizing that people could go in and buy a home. At that time REOMAC had about 300 REOs in the entire company. Last year, REOMAC had closer to 20,000 REOs. In 2008, lenders were overwhelmed by the number of defaults in their portfolios. They were unable to sell their inventory faster than it was coming in. Bruce asks Shelley if there are agents who have been thru this cycle before saying that there is a difference in how their properties are being handled this time. Shelley does not think there has ever been such a bombardment of properties. Bruce says that asset managers once talked to REO agents, and there was some type of communication on a regular basis, but now their communication relies on email, and this is sometimes frustrating for an agent. Shelley agrees and disagrees with that statement. Agents are busy in the field as well. Most of the lenders went to online systems, and since you could do all your business online, there was less need to speak to agents. Bruce says that in 2008, there was a challenge in pricing properties correctly and the lenders took a lot of losses that they could have avoided if they had just listened to their local agents. Shelley does not think that the lenders necessarily needed to listen to the agents because when agents work for a lender they are appraisal driven. The appraisers and brokers were disagreeing with each other. Nobody could keep up with the speed in which property values were dropping. It took a while for everyone to understand what was occurring in the market place. People had many years of increasing prices, so it was hard to fathom that prices were dropping as quickly as they were. In the past, when there was a decline, the appraisers would notify the seller that they were deducting three percent per month to accommodate for what was occurring in the market place. In this downturn, people were not doing that because they did not understand what has happening. They did not have the proper statistics. If they were looking at comps, that would not work. If they were looking at stats that were even 90 days old, then the broker would have a poor understanding of what they would get for their property. Appraisers give you information from data, rather than what is going on in the market place. The lenders started to realize that the agents were their best source of information. Bruce asks Shelley if it has been difficult to keep up with all of the rule changes that have been applied to the foreclosure process. Shelley says that it has been difficult for everybody, because there have been times where people were about to sell a property, and in the middle of the process, some sort of law changes. Laws have been made on both the national and state level. Bruce asks Shelley if a lot of states are having moratoriums. California did for a while but the lenders are the ones that have really put the moratoriums in place. When Fannie and Freddie started doing this, everyone else followed suit. Bruce asks Shelley if there is any chance for a national moratorium. Shelley hopes not, and she thinks that nobody truly believes that the moratoriums are doing anything other than delaying the inevitable. When someone creates a moratorium for 9 months it messes with your business model and you have to staff up for that. The moratoriums are affecting the REO agents and the lenders. While the moratoriums may keep people in their homes temporarily, it may also be putting other people out of work, which will lead them to losing their homes. A new rule has just been created that protects tenants after the foreclosure sale. This rule allows anyone who has a lease agreement to stay inside a property during the entire time of the lease. Shelley says that the wording in this new law is vague and unclear, so attorneys are trying to interpret the meaning. The problem with this rule is that it turns lenders into landlords, and that is not the intent of any mortgage or loan process. This is expensive for any lender that exists and it will put fear into the next lender who takes over the property. Shelley says that some people worry that this law will scare away potential investors who buy properties from foreclosure sales. Bruce confirms this belief saying we will not buy a property with a tenant. Shelley wonders who will be collecting the rents as well. Will the agents collect the rent? But why would they do that if they are not going to be able to sell the property? The system is not set up to handle this. Investors won?t touch this because typically when buying at trustee sale the investor has not seen the inside of the house, has not met the renters, and have no idea what the lease agreement says. It is difficult to determine what a valid lease is, and whether or not a property is actually something you want to keep. Bruce fears that people will take advantage of this law by faking people into believing that they are legitimate tenants, and that they have the right to take charge of the lease. It seems difficult for the lenders to do this without taking on a lot of losses. The longer they hold on to their properties the more expensive it is, and the less they will be able to make on them. This law may also turn them into a landlord with many other responsibilities and they are not ready for that. The cities in California have passed a law that allows the city to fine lenders $1,000 dollars a day for things such as brown lawns and green pools. Bruce knows cities that have hired code enforcement people who are paid just to check up on these things. This is actually occurring in Chicago and other cities as well. This is unfair because there are many occasions where the lender does not have the property vacant so that they can repair the property. The cities are just putting the lenders in a position where they will have to spend more and more money. Cities need to be in partnership with the owner of those properties. Cities are starting to fine properties right after they go into foreclosure but they are not fining the occupant or the owner. |
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05-30-2009 |
This week, Bruce is joined again by Randy and Mike Grigg who head Elite Auctions. Randy Grigg is President of Elite Auctions and Mike Grigg is the Chief Auctioneer. Last week, Bruce, Randy, and Mike discussed a Riverside auction in which a man bought a home out of the MLS. Because of the price deterioration in the market, Bruce said that the man should flip the property via auction. In the end, the buyer earned a large profit after the property sold. Bruce asks about the costs to market. Randy and Mike Grigg discuss marketing and advertising and what the auction company does to attract attention. They are also able to show all their results to their clients, so that they know where their money is being spent. Bruce asks Mike and Randy how many people showed up to a particular open house they had. They had approximately 60 to 80 people come in to view their property. They typically have a successful auction when there are that many people attending their open house. Whenever someone attends one of their auctions, they always ask the attendees how they heard about their auction. Only about 30 percent of their attendees go to the open house. In this case, the winning bidder did not go to the open house. The winning bidder owned rental properties in that same area, and he was attracted to the property from a post card advertisement. Altogether, 38 bidders showed up at the auction, and they all had $5,000 dollar cashiers checks. The home being sold needed paint, carpet, and the kitchen was in bad shape. Just down the street from their auction, REDC was selling similar inventory for $98,000. The final sale price for this house was $147,400. The investor bought the home for $75,000. What a fantastic deal. They closed the property in 12 days. Bruce goes on to discuss what people consider to be a ?deal?. Bruce believes that if that buyer owned homes in that same neighborhood then he might have paid more for every house that he owns than that particular one. People are used to thinking that real estate is so cheap, that they have forgotten that real estate used to be 2 or 3 times the current price. Sarah, Bruce?s daughter, bought a house very recently. From Bruce?s perspective, her deal was the interest rate she received. The market was at 5%. The man who bought this property knew the area he was buying in, so the purchase worked well for him. Auctioning properties is challenging right now, because buyers are very cautious. In a market where prices are escalating quickly, the auctioneer will be ahead of the prices in the MLS. The consumers prove how much the auctioned property is worth when there is competition. Bruce believes that his properties in Rosamond would have sold better if they had been auctioned. Bruce is surprised builders don?t use this method instead. Bruce asks what Mike?s duties are as the president of the California Auction Association. Mike?s main duty is following California government legislation in regards to real estate auctions. He also assists other auctioneers by showing them what they need to do to be a legitimate auctioneer. Mike arranges conferences where speakers come and talk about their specialties. The main goal is to better California?s auctioneers, so that they can offer better service to their clients. Bruce asks Mike if there are California rules that trump national rules and vice versa. Mike says that auctioning rules vary greatly state to state, and that California is actually very lenient. Mike would like to see more legislation to stop people from holding deposits for lengthy amounts of time after the bid is rejected from the lender. Bidding on behalf of auctioneers is also something that needs to be addressed by legislation. Instead of an auctioneer having to be licensed like a realtor, there should be a separate real estate auction test. It?s very different. Bruce asks Mike what C.A.R. thinks of real estate auctioning. Mike does not think that C.A.R. views auctions as a bad thing. There are some Realtors that view auctions as a threat to their business, but it is not. Mike and Randy pay Realtors if they bring in buyers and sellers. Approximately 10 percent of the time a Realtor represents a client for his auctions. Occasionally, Realtors get confused by the process because they are not used to that method, but Mike does not feel that this has affected his ability to close a deal. In the United States people have viewed auctioning as a necessary evil. Bruce asks Mike if he thinks that auctioning will have a strong foot hold in the real estate business in the future. Mike thinks that auctioning will become more important for real estate sales in the future. California seems to be far behind the rest of the United States in regards to understanding the value in auction sales. Bruce believes that the key going forward is to have repetitive clients. If investors get the idea that they can efficiently sell houses in auctions then it would be constantly viewed by retail people as a respectable selling method. Mike believes that as the real estate market returns many of the big auction houses will go back to land auctions, but Mike and Randy?s business will stay as a local California business. Bruce asks Randy what kind of perception change has taken place in the auction industry. Randy thinks that much of the public still view auctions as a fire sale, but many investors believe that it is an effective way to sale inventory. It depends on who you talk to. Bruce discusses how variable the results can be when selling properties through auctions. The right person for the sale may or may not be attending. Often the problem with auction sales lies within the seller?s expectations. When people own properties, which they have assigned a feeling of value to, it can distort one?s perception of whether or not a property is being sold at the right price. Randy believes that houses sold through auctions are priced properly about 80 to 90 percent of the time. Bruce asks Mike how different it is to auction real estate in comparison to other auctions. In real estate you do not get paid immediately. You have to go through escrow, and you have to understand how to deal with Realtors. An antique seller is not going to understand real estate, just as a real estate auctioneer will not understand antiques. In the rest of the auctioneer industry, you usually get paid immediately after the sale. Online auctions are also much different than the on site real estate auctions that Mike and Randy handle. |
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05-23-2009 |
This week Bruce interviews Randy and Mike Grigg from Elite Auctions. Randy is the President of Elite Auctions for which Mike serves as Chief Auctioneer. Mike is also current president for the California Auctioneer Association. Bruce begins by asking Randy how he got involved in real estate. In 1977, Randy had heard in seminars that real estate was the way to go, so he eased into it. He brought his first rental house in 1977, and after that he bought about 2 or 3 houses every year, for 20 years, and then stopped. Randy?s plan for real estate was to buy houses so that he could pay them off and enjoy the cash flow. This has worked well for Randy, and he currently has a few dozen houses that he is collecting cash from. Bruce asks Randy when he started auctioning houses. Randy says that he started doing auctioning after he decided to stop doing real estate for a while. After getting involved, he decided that he did not like the selling process, because he had a few escrows that fell out. He drove past a house in his neighborhood one day, and he discovered that it was being auctioned. He decided to attend the auction in hopes that he might buy the property. He thought that he might be the only person at the auction, but he discovered that many people were interested in bidding at auctions. The house he wanted to buy went up to full market value, so he thought, ?this might be a good way to sell.? This occurred in 2002. Bruce asks Mike when he got involved in the auction business with his dad, and who the typical selling client was from 2002-06. He says that he got involved in 2002, and that he dealt with a lot of homeowners who were expecting to receive a high offer. In 2004-06 most sellers were astonished by the selling price of their homes. When Mike and Randy got involved in the business, they did it to help investors help sell 5 houses per day, but when other home owners discovered what Mike and Randy were doing many decided they wanted to auction their houses too. Bruce asks Mike if he gets a lot of exposure from just holding an auction that is successful. Mike claims to receive a lot of attention from his auctions, because many times Mike will have 100 people show up for one house, and some of the participants have houses to sell as well. Between 2004-06 the typical buyer was an own occupant. The typical buyer showing up now is often a long term investor, and first time home buyers are getting into the market now too. One of the recent changes that have been made to the $8,000 tax credit program is that first time buyers can use their 8,000 $dollar credit as a down payment up front. The typical selling client that Randy works with right now is a rehabber, or a wholesaler, who understands that if they do not get their houses sold within two months then they will lose their opportunity to gain a profit. Prices went down a great deal. Mike and Randy have an auction coming up on June 4, which will include houses that they have bought at REDC and Hudson Marshall. They have done minor fixes to them, and they are hoping to gain a profit. They have done 25 auctions within the last 8 months, and most of them are profitable. Bruce asks Mike and Randy if they have ever had their competitors try to buy their houses, and then resell them for profit. They do not know if that has ever occurred, but they doubt that this has ever occurred, because they fix their houses more than other auction companies do. Some auction companies host their events in a ballroom setting with a large amount of inventory, but Mike and Randy have taken a different route. Mike and Randy typically sell 3 or 4 houses per day, because they do their auctions at the property they are selling. Mike and Randy?s advertising has done very well, but it has changed dramatically in the past seven years. They are doing much more internet advertising now. It is more expensive to send letters than to advertise on the internet. Mike believes that their may be a time when they no longer need print media. The newspaper does not work as well in bigger metropolitan areas. Bruce asks Mike what source he receives his most qualified buyers from. Mike claims that the sign on the front of the property often attracts the most qualified buyers, because those buyers often own property on that same street. When you put the word auction on a sign, people pay much more attention. Mike usually has two open houses during the week before the auction. Each open house is about 2 hours. The main reason why they have a limited time for viewing each house is to create sense of urgency. They are prepping their mind for the auction, because the house is going to be sold at a specific time and date. Bruce asks Mike if it is important that there are other people present when someone attends the open house. Mike thinks this is very important, because it gives them the idea that they are doing the right thing. Bruce asks Mike what his main objective is when people call about an auction ad. Mike?s main objective for the initial conversation is to get them excited about the auction, and to get them to come to the open house, so that they can fall in love with the property. He also wants to assure potential buyers that buying from an auction is simpler than buying the normal way. The first call that Mike gets from a potential buyer is the most critical call, because it is easy to lose buyers when they first call for information. A first time participant may be looking for a reason not to attend the auction. Mike has hired a professional to handle most of his buyer calls. Most people assume that an auction would be held on the weekend, but Mike and Randy are having their auction during the week. They hold auctions on everyday except for Sunday and Monday. They prefer not to hold auctions on Sundays because they do not want to get in the way of anyone?s religious traditions, and on Mondays people are busy preparing for the rest of the week. However, he has attended an auction on a Monday that was very successful. The time that they choose to hold their auctions does not seem to matter too much. There are times when more people will show up for a Wednesday auction than a Saturday auction. Bruce asks Randy how many bidders are typically needed for a successful auction. Randy has had successful auctions with as little as 3 bidders. He often feels better when there are only about 5 to 10 people attending. There?s been up to 70. Bruce asks if there?s been any issues with appraisals. At one auction, the bank lowered the $10k. They stuck to their guns and the buyer ended making up the difference. Bruce talks about The Norris Group?s current appraisal situation and how the verdict is still out. Back to auctions, when Mike starts an auction he often begins by auctioning something small for charity. He does this because it helps new bidders to relax, and it encourages them to bid. It?s an ice breaker. Bruce asks if people ever forget about the buyer?s premium. About half of the time, people forget about the buyer?s premium. This still occurs even though they disclose it in all the written terms, and it is disclosed before all the auctions they do. Even Mike has forgotten the buyer?s premium, because there are many times where people come to an auction not thinking about the buyer?s premium; they are thinking about winning the property they want to bid on. Bruce asks if Mike can tell when buyers feel remorseful over their decision to buy. Mike can tell when people feel bad about their decision because they do not look excited. This is why Mike does his best to make people feel comfortable when they buy his properties. He does his best to answer his buyer?s questions. Mike believes that receiving a healthy deposit for the closing of a property is of key importance. In this market, you cannot come out and tell people that they need $15,000 dollars for them to bid, because you will knock out all the first time home buyers. On a single family house in Bakersfield, Mike and Randy will often ask for a $5,000 dollar deposit, because it is enough to encourage people to close the deal. Mike and Randy close about 95 percent of their escrows during the first try. Bruce asks Randy to describe the perfect seller to have as an auction client. Randy thinks that the perfect seller is someone who works with wholesale properties. Those kinds of people have reasonable price expectations, because they often buy at the right price to flip it, and they are willing to pay for the marketing cost with the expectation that Mike and Randy will make them a profit. The number for Elite Auction is 661-325-6500, and their website is www.sellwithauction.com |
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05-16-2009 |
Bruce Norris is joined once again by Chief Economist for the California Association of Realtors, Leslie Appleton-Young. Bruce begins by asking Leslie about the CAR payment protection program. Leslie says that C.A.R. has a housing affordability fund, which was developed around 2002. It is a fundraising arm, run by a group of members, which gets proposals from local associations for various projects. Since the downturn, the committee has decided to do something that has potential to impact the market by putting people into homes. The committee has developed a $1 million dollar program, which can be used to pay a premium on an insurance policy for a qualified first time home buyer who uses a California realtor. The criteria for this program includes someone who has not owned a home in 3 years and you have to have been employed for a minimum of four months. The policy does not begin to pay on a job loss situation for six months, and then the policy will pay for $1,500 dollars of the mortgage payment for six months. If there are two buyers then the second buyer will get $750 dollar benefit. The application does not take place until the close of escrow. The buss has been tremendous. Leslie is hoping that this program will be able to help 3,000 home buyers. Bruce asks Leslie if the funds given from this program need to be paid back and she says no. She says that it is an insurance policy that does not need to be paid back. She is hoping that this insurance policy will encourage 3,000 people will make the choice to buy their first home. Hopefully it gets people off the fence. Bruce asks Leslie what encourages her most about the current California market. She has seen a tremendous amount of resiliency within the last year and a half. The damage that we have withstood since the beginning of the downturn can be compared to a forest fire; things get damaged, but in time you begin to see the green seedlings come up. Seeing 7,000 people attending the first time home buying fair was very gratifying to her. People are starting to look at homes as a place to live and a long term investment which is very important. The motivations and expectations are changing. Bruce has studied migration for years, and he is sure that California is losing migration right now, but he believes that when California gains more job stability that we will receive more migration from all states, because we are a very desirable place to be, and our monthly payment will be lower in ratio of earnings here than in other places. Leslie says that it is difficult to predict what will happen to California because of all the socioeconomic and demographic changes going on in society. One of the things that will have to happen is making more livable cities. Technology allows you to live and work anywhere. It has been argued that the younger generation will be more mobile because they will have 8 jobs in their career, rather than just 1 or 2 like the boomers. Location isn?t as relevant because society is becoming so mobile. Bruce believes that the retiring baby boomers will be attracted to California. They will have the choice to pay a $300 dollar gas bill, so that they do not freeze during the winter, or they can move to California where you can survive without a heater. Climate is huge. The traditional buyer, which is the person that hires the Realtor that they knew or the person that drives by the for sale sign, has been replaced with the online buyer. Leslie says that 78 percent of home buyers use the internet during their selection process, and most of them say that they found their agent on the internet, but different surveys produce different results. The only explanation that she can come up with for the different results is that people are being exposed to more advertising and different types of advertising, which is why she tells her members that they cannot do only one kind of advertising. Only 20 percent of home buyers have claimed that they use print in their home search, and 75 percent of that 20 percent said that they looked at the weekend supplements for open houses. Bruce believes that Realtors have to understand that customers are always looking for and up to something new. Leslie says that she knows a lot of Realtors who team up with people of different ages, so that they can appeal to a larger number of people. Bruce says that there are two factors, shadow inventory and a large pile of notices of default that will affect trustee deeds and more REOs. He believes that inventory levels are giving us a false indicator, and that the REOs are going to greatly affect the market before the end of the summer. Leslie believes that we will see a second wave of foreclosures during the 4th quarter of this year. The notices of default are going to affect the market, there are Alt-A and option ARMs that are typically a five year fix, and there will be a continued loss of jobs. Lenders are saying the inventory is out there but clearly there is a bottleneck. There are now three times as many foreclosed properties in comparison to normal listings compared to last cycle. That is the one ration that Bruce believes must rectify itself before a normal price environment can return. We have to get through the bulk REOs. The Norris Group used Krunching.com to track trust deeds back to the lender when they could not find the inventory reemerge as a grant deed or a listing, and they discovered that there were many cases like this. Obama claimed that the government would give $75 billion dollars to loan modifications, and that not one dollar of it will go to investors. This worries Bruce because he fears that Obama may have been speaking about all investors, rather than just speculators. Bruce believes that many of the problems in the 90?s were solved because of the 203K loan that investors could use, but this loan option has not reopened to investors yet. It allowed investors to buy a fixer upper and include their purchase price plus the repair cost in the loan. Bruce hopes that they will reactivate that loan for investors. Bruce asked Leslie, ?How do realtors view investors?? She replies investors are a very important part of the market. They are one of the forces behind the current market strength. One of the issues that she has heard is that first time buyers are having difficulty competing with investors. In defense of the REO agent, Bruce claimed that investors get offers when they protect the owner occupant from a failure. The inventory will not work for a conventional loan at this time. Bruce asks Leslie how she feels about the cram downs. She says that CAR has been opposed to cram downs because cram downs increase the cost of financing for every one else. Bruce thinks that is a scary thing to start because it gives bonuses to people who declare bankruptcy. Usually that is something you do not want to do because it prevents you from getting a loan, but in this case it can help you. Bruce asks Leslie what she believes will cause the market to become healthier. She believes that inventory and foreclosures are the most important factors. The future is unknown because it all depends on how quickly the economy reinvents itself. Bruce asks Leslie if she thinks our current interest rates will remain low for a significant amount of time. Leslie believes that interest rates will increase significantly in a few years. The price and interest rate combination are an amazing bargain right now. |
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05-09-2009 |
Bruce Norris is joined this week by Chief Economist for the California Association of Realtors, Leslie Appleton-Young. Bruce starts by asking how many members C.A.R. currently has? In 2009, she estimates there are 160,000. Peak membership was in 2007 when there were 211,000 members. The numbers are better then both originally thought they would be. Things have really changed and people are doing very different things than they were two years ago. More work is out there for REOs, working with investors, and first-time buyers. Bruce asked if the membership encouraged by what you were able to say for 2009? Leslie says the market, in terms of transactions, has seen the worst. The market bottomed, in terms of sales, in the fall of 2007. We had over a 25 percent increase in sales in 2008. The problem is that there is a lot of uncertainty right now about everything, but particularly about the economy. That is what is hard to gauge right now. There has been a lot of initiative coming out of Washington that has not yet had a chance to impact on the street. It is easy for an economist to say ?jobs are a lagging indicator?, which they are, but this restructuring could go on for a while, and it could get a lot worse. Leslie says she is able to carry a message that the distressed REOs and short sale component of the market is bottoming, and slightly improving, with respect to prices. Sales have gone up sharply in the regions of the state, such as the Inland Empire, where you have a significant amount of the listing inventory falling into the distressed category, so that housing is extremely affordable. There are parts of the state where homes are selling below replacement cost. I think that is very encouraging, but there is a cloud over the country and the world, because it is uncertain how long this recession will be. That will have an impact, and I do not think anybody knows. Bruce says that the hardest part about this real estate downturn is you have to consider so many factors that you have never had to contemplate before. The local, national, and global economy comes into play. Leslie says we have political issues, we have environmental issues, we have swine flu, and we have the economic issues that are really difficult. Housing is just one part of it. Clearly, subprime started the ball rolling about 3 years ago. There is no doubt that this is a systemic issue related to risk taking, transparency, fee driven events with no accountability, and so on. In order to rebuild confidence there needs to be some major changes in how these industries are regulated. That is happening in Washington now. Bruce says typically when you start down the path of regulation there?s a danger of over-regulation. Leslie says that is possible, but there needs to be more regulation now so that people know what they are getting when they make an investment. That is what is really crippling the lending market. Investors do not want to have anything to do with mortgage backed securities, because they do not trust the paper. There?s no way around it because you need this intangible item called confidence and trust, which is not going to come back on its own. Leslie says she never thought she would never see the statewide media and home price drop 38 percent in one year. Bruce says he agrees. Investors are buying properties right now at prices we have not seen since 1987 because of the REOs. The median price is probably not highly accurate because there is a mixed inventory. Leslie says that is absolutely true. She debates average versus median with people all the time. The issue is the fact that it is the moderate and low end of the market that disappeared in 2006 and 2007, and the high end was maintaining until September of 2007 when you could not get a jumbo loan. In 2006-07, the market contracted, in terms of transactions, by more than 20 percent during each of those two years, and yet the median home price was at a very high point.: The high end was still going strong, but that all changed in September 2007. One of the themes, in remarks to C.A.R. membership is ?leverage your local market knowledge?, because a national, statewide, regional, or county statistic is not going to be enough. It will not be accurate for the decisions that your clients are making with respect to a particular neighborhood. Bruce talks about a recent survey where the customer was asked, ?What will the direction of prices be in 1, 3, 5, or 10 years?? The dominant answer was ?I do not know?, and yet they still bought and Bruce was surprised. Leslie says there are a lot of things going for the market right now. The federal government is buying rates down to 4.5 percent, there is an 8,000 first time home buyer tax credit, there is a 10,000 dollar state income tax credit for construction, there is the FHA financing, there is conforming loan financing that is fairly readily available, and you are looking at prices that are half what they were 3 years ago. Bruce says that interest rates are also 2/3 and the affordanility number is way high. Leslie says if you look at PITI in the last two years, you can see that it has been cut in half. Bruce talks about his 24-year old daughter and purchasing her first house. It is a big thing when you have your first chance to own a home. It?s an FHA purchase, in which she will have $4,000 or $5,000 dollars down, will receive an $8,000 dollar check from the federal government. She previously rented a room for $700 in another area, and her payment on a perfect fixed house is $804. Bruce says most families have two incomes so he doesn?t think there has ever been a time where California real estate has been this affordable. Leslie says she challenged an audience last week to examine what their assumptions are about price appreciation over 3, 5, and 10 years, and to make sure that was not driving their decision. It was important for them to understand that housing prices come down. Bruce says that is part of this issue. There were a lot of realtors, investors and home owners that were very accustomed to just owning a house that created an extra $50,000 to $100,000 dollars whenever they wanted it. Leslie says homes won?t be seen as a piggy bank any more. Leslie challenges everybody to look back at the past 3 or 4 years, and study it, and be engaged in the public policy debate that is going on in Washington. Look back at the post World War II period up until 2002, you can see that housing debt was different. People treated the home ownership process very differently. It was hard to get a mortgage. Foreclosure and getting into trouble was not viewed as an option. That did not happen unless there were extraordinary circumstances. The fact of the matter is there were a significant number of people who refied out of reasonable loans into risky loans. Many of the deals that went on during the boom were cash out, so people were put in harm?s way. Bruce says important is the velocity of this downturn. Leslie uses a slide from the late 70s that shows it took 5 years for the market to shrink about 60 percent. In the last 80s and early 90s it took 5 years for the market to shrink. This time it has taken 3 years for the market to drop 44%. Prices are typically sticky on the way down because if the market is not good then why would discretionary sellers decide to sell. In the last couple years there has been a lot of nondiscretionary sellers. Bruce says that the job issue doesn?t look like it will be solved immediately. Leslie says the big question, in regards to the housing market, is the economy. The problem resides within job losses and confidence. The problem is not that people cannot get financing, particularly conforming financing and FHA. Bruce says in Riverside, 45 percent of the buyers are under water. Then other people are out of work, or under employed. When you add up these pieces you realize that you need the new buyer to emerge, or you need to attract migration to California, and jobs play a part in that. We are going to have a challenge in the next 18 months while we find out who is going to buy all this stuff. Leslie says she?s been floored by the first time buyer response, and the affordability is clearly the trigger, but there were a significant number of people who were on the sidelines waiting for this to happen, and they timed it right. Bruce says there is a definite shift to the type of buyer. It?s really geared towards a first time buyer. Leslie says she thinks most buyers are getting fixed-rate loans. She doesn?t know why anyone wouldn?t get a fixed-rate loan. One of the things said in a recent survey was that 56 percent of people qualifying said that on a scale of 1 to 10 of difficulty in getting through the financing they had a scale of 9 or 10, over half the people found it pretty tough to get that loan closed. Leslie says it was a survey that was done in the middle of last year, so it will be interesting to see if the scale changes when we do it again this year. Leslie?s hope would be that the Obama initiative helped that. Another issue with difficulty is not that the funds are not available, but you have got to document everything. You have got to have a very strong FICO score, and you have got to have your W2s. The problem is not that the money is not there, it is that they want to make sure that they are going to get their money back, and who can blame them? Bruce says you have to set up the next set of loans to be safe, so when there is another mortgage backed security in our future that it is actually as advertised. Leslie says transparency is critical for us to get our market back. She said on many occasions that rapid price appreciation trumps underwriting. She does not think we can count on that any more. It is an incredible risk to take. Bruce said the projected median price for 2009 was around $250,000 and he wonders if that is where we?ll end up. Leslie says $250,000 is a reasonable number. When CAR calculates a statewide median for the entire year it is recalculated from scratch. It is not the average of monthly median. They include everything that is sold during 2009 into the bucket, and then get the median. What I am seeing in the market today is that the price softness is at the high end. It is not a huge factor in the market right now because that is a small part of the overall sales. I thought it was very interesting in our March data that we saw an increase in the median home price from one month to the next. It is likely that we are bouncing around the bottom in terms of prices. There?s a lot of talk about multiple offers at over asking price. Join Bruce and Leslie next week as they continue the conversation. |
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05-02-2009 |
Bruce Norris is joined once again by Chief Financial Officer with Leivas and Associates, Susie Leivas. Bruce starts by asking about 1031 exchanges. Many California real estate investors took money out of California to dodge the price declines and are now bringing it back into California. Bruce asks Susie to expand on the 1031 exchange concept. They start by talking on what like-for-like means. Susie says like-for-like means you can buy any real estate. However, it can?t be personal property. You can switch from investment single family residence for land, as an example, as long as it is an investment property. Boot can happen if money is not spent in an exchange. So when a replacement property is not of higher value and there?s extra left over in the exchange, if it doesn?t get reinvested in like-kind, that left over portion can be taxable. When you close escrow on the property you sold, you only have 45 days to find a replacement property and 180 days to close. If an agent suggests backdating the paper work, DON?T DO IT. Backdating can cause you tax penalties and jail time. The IRS takes this fraud seriously. Out-of-state ownership of property could require investors to file for that state tax. Depending on the filing status and age of applicant, the Federal Government has an amount cap and after that is hit, the gross amount must be filed. Many states are the same. Check with your tax professional. In California, investors must report their world-wide income which goes on the Federal and California State return. If there is an additional state, they can give you a credit for filing in an additional state which is dollar for dollar. Worldwide income is required and Bruce asks if investors can deduct world wide losses. Susie says she?s never had a client do that so she?s not sure. Bruce and Susie talk about precious metal sales and if they are on the honor system. The process doesn?t have an escrow and it?s hard to track. Susie does not know if the IRS has a way of tracking. If the IRS was tracking, they would be looking for deposits that seem odd. Bruce asks about refinancing properties and 1031 exchanges. Susie says there will be deductible interest issues and there could be a tracing problem. Bruce talks about credit lines and investors. Many investors in California don?t realize rules about limits on deductible interest. Only $100,000 is allowed. Beyond that, if it can?t be proven that the dollars aren?t spent on home improvements, it?s not deductible. There?s a one million dollar cap on mortgages. For rentals, it?s a different category. The money just has to be traced and used for that property. You can take out money of one and invest in another but it has to be traceable. To be declared a real estate professional, there are several categories. 50% or more of everything you do must be real estate related and 750 hours are required. Susie gives an example of a teacher couple who has a rental and how the IRS might look at their situation. Bruce asks about the forgiveness of debt for an investor versus a regular consumer. A 1099C will be given for the amount of forgiveness. As an investor, the only way out of debt completely is to declare bankruptcy or file for insolvency. The test for insolvency is when you put together all the assets and liabilities. If liabilities exceed the assets, you can claim insolvency. At that moment, the debt is permanently wiped out. In the past, if a consumer submitted a fraudulent return to a lender and the IRS got a hold of it, the IRS will use that for taxes. For stated income loans, she is unsure of how that is being handled by the IRS. Bruce asks about an investment rental property that receives repairs and how that is handled in taxes. Susie says the repairs would be capitalized and made part of the purchase of the property. Residential real estate is a 27.5-year asset and it would be deducted over time. Points and financing costs have to be amortized as well. Dealer status means you are in the business of buying and selling real estate. Intent is key here. Did you mean to buy a property as an investment or was it to buy, fix and sell? This matters for self employment taxes. Bruce talks about entities. There are S and C Corporations. In C Corps, there are no capital gains. As a dealer in C Corp, it might be a good entity. Before year end, the investor needs to make sure all profit is out of the business by way of bonus and payroll. Social security and Medicare will be paid on that. Things might change soon because of this administration?s intent of foxing social security. Check with your professional tax advisor. Bruce asks if people can write off home price declines and Susie says no. Bruce says many investors went into many states that had different recourse rules. People need to understand the difference between recourse and non recourse states. Bruce and Susie talk about the difference between tax credits and write offs. Thanks so much Susie for the interview. You can find Susie and her team at leivasassoc.com. Next week join Bruce and Chief Economist of the California Association of Realtors, Leslie Appleton-Young. |
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04-25-2009 |
Bruce Norris is joined this week by Chief Financial Officer with Leivas and Associates, Susie Leivas. Susie started working in the tax field at 13 years of age. Susie goes into a little detail of the family business and how she got started in the industry. Leivas and Associates does tax returns for individuals, corporations and trusts. Susie sees more audits comings as the State is more cash tight. Susie as an enrolled agent can represent clients during audits. An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. The IRS is getting tough as to who they will work with. If you?re not an attorney, enrolled agent, or CPA they won?t want to speak with you. There are different types of audits. Susie describes how the IRS is tracking how many returns the business and she personally accomplishes in a season. Every year the IRS could be looking for different things as red flags. Bruce asks if a tax preparer pushes the envelope if the IRS could audit their entire clientele. Susie says she does know of cases where that has occurred so it?s important you have a person who knows what they are doing. Susie describes red flags for the IRS including negative taxable income, extremely high business expenses, and anything really out of ratio. The IRS uses computers and then people to check for inconsistencies. A CPT 2000 does not mean a person is being audited. Bruce asks if there was any significant change this year to policy. Susie says no big stuff but the stimulus bill has changed some things including college credits and automobile purchases. Some got passed during tax season. Bruce asks how this year has affected her clients. Susie says it?s been a depressing year. People are getting laid off, furloughs, pay cuts, and overtime has been cut. She thinks most Americans are a paycheck away from bankruptcy and we?ve learned to spend too much. She says this year was a very different year than last year. Bruce asks how this cycle feels compares to the 90s and Susie says this year feels worse. In the 90s, Susie heard issues from mainly businesses. Individuals are really concerned and don?t see an end in sight. Susie says people 60 and over know how to save money. People who are younger really don?t understand savings and it?s a real issue. Bruce says people confuse home equity with a savings account. Susie says real estate was seen as a check book and that she?s very surprised at how much people had started to pull out of houses. Susie says people don?t look at the full picture when making purchase decisions. They seem to mostly care about the payment, not about terms. Susie saw many people become second homeowners and almost 100% were financed. Very few people own anything free and clear. Many people are retiring now with major debt. The old way of thinking was to get rid of all debt and then retire. Social Security was meant to be a supplement and around 70% rely on Social Security as their only form of retirement. Susie says she was expecting the foreclosures to hit sooner and so far her clients haven?t gotten hit so hard. Part of her job is to pick people up so she?s been preparing herself for those conversations. She was ready last season. She got a little this year but not as much as she expected. Susie says if people have yet to pay their taxes, they need to as soon as possible. Once you file, the IRS is willing to do payment arrangements and it?s really easy. If it?s really bad, she thinks the IRS will probably compromise and negotiate considering the current climate. The ability to pay will probably be more of an issue. Susie and Bruce talk about people who don?t file for years and the process of going about getting into the system. Susie says the state is more aggressive in going after late payments. Bankruptcies can wipe out debt but it depends. Not all debt is forgivable. Bruce asks about insolvency and how that plays into the IRS. Susie says Congress made some changes to help homeowners with acquisition debt. The state didn?t do the same. Susie says the every year the amount a senior can make before being taxed changes. Susie and her team can be reached from their website at leivasandassociates.com. She will join us next week for part two. |
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04-18-2009 |
Bruce Norris is joined once again by past President and current Chairman of the Board for the National Auctioneers Association and co-founder of Williams and Williams Auctions, Tommy Williams. Bruce starts by asking if there is a different process in selling real estate and cattle. Tommy says there is a slight difference but he?s hoping the audience will still understand. He says cattle auction goes a little faster and is a little more entertaining. Auto auctions generate close to 50% of the proceeds for auctions. The end buyers are typically dealers. There are both dealer and public auctions but some are only available to dealers. July 13-18th is an auction reunion in Kansas and Bruce asks who attends. Tommy says over 1,000 auctioneers will attend and bring families. It is the best and main time of year to attend education for the auction industry. Over 60 seminars will be available. Bruce asks about Tommy?s family history in the auctions business. Tommy says there was a little family history but he fell into it on his own. Tommy?s son Dean is an attorney and didn?t plan to be in the auction industry. Tommy moved the business from Illinois to Oklahoma and Dean visited while in school and ended up later partnering. Tommy says he has six grandkids and he thinks a few might be interested in the business. Bruce talks about the model Williams and Williams has chosen and how it is different from other auction houses. Tommy says online auctions are a very viable way to sell items and Williams and Williams does conduct online auctions. However, Tommy says a property will earn 10% more on the lawn then it will bring online or in a ballroom setting. It?s significant and matters. There is more expense in having these types of auctions. Tommy describes the difference between absolute and seller reserve auctions. Tommy says the absolute auction is by far the best and motivates the buyer to the ultimate level of bidding. It also attracts the most attendance which is key for the best price. Tommy says many can?t stomach absolute so more are sold with reserve. Tommy says it not impossible for very experienced auctioneers make mistakes. It?s complicated and not as easy it may look. Advertising has definitely changed over the years. The newspaper has dropped in value each and every day and online advertising has gotten more important. The auction companies track the marketing process very carefully to see where most people are seeing the information. Tommy says when the word ?sold? is uttered, in an absolute auction, it is the most binding contract you can enter into. It is different in a seller reserve. Bruce talks about dealing with deposits in real estate now and how difficult closing can become. Tommy says he thinks 10% down should be at stake to make sure the buyers are truly qualified. Tommy says he doesn?t like the current way real estate is sold because of these issues as buyers can tie up your property will no ramifications if they don?t come through. Tommy describes how the auction business is commissioned. Williams and Williams gets commissioned directly from the seller. Some lenders require, however, a buyer?s premium. Many more auctions are charging buyers but Tommy actually likes charging the seller. He thinks the buyers see the auction in a more positive light and the premium isn?t seen as a tax on their purchase. Bruce asks about Tommy dealing with lower priced areas. Tommy says there are minimum fees that must be charged. There does become a point where auctions can?t sell a property because it doesn?t cover the fees. Bruce talks about lenders not foreclosing on properties because there is more owned on the property then it is worth so lenders don?t do anything with it. Tommy says this issue is really serious and most people aren?t hearing about. Tommy says he?s seen some neighborhoods where 80% of the neighborhood is vacant. There?s almost no choice but to tear them down as they become magnets for vandalism, squatters, and drug labs. Bruce says it doesn?t even have to be an old areas and Tommy sounds surprised. Tommy says that?s why these homes have to be given occupants whether they are investors or owner occupants. Empty properties are not good for neighborhoods. Bruce talks about Orange County and the FDIC leasing space to set up shop to deal with assets. He asks if Tommy has heard of that and if Williams and Williams were involved in the RTC situation. Tommy says they were slightly involved with the RTC but dealing with government is difficult. Tommy had not heard of the offices being rented in Orange County. Tommy is worried the FDIC will warehouse the properties and it will make the problem worse. Bruce brings up a new term he saw on the Williams and Williams website called ?auction referral cooperative.? Tommy says this is a way to establish a network of like-minded auctioneers that refer one another. There?s no financial obligation and they are simply looking for other auctioneers of the same mind and there?s a referral fee involved. Thank you Tommy as always for joining us on the show. We look forward to seeing you again this year on September 11th, 2009 for I Survived Real Estate 2009. See more on Williams and Williams at Williamsauction.com. |
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