Skepticism increases 1.3% on conflicting housing data

by Dan Krell © 2012
DanKrell.com

housing dataWhen the National Association of Realtors® announced last week that April’s existing home sales increased 3.4% to an annually adjusted rate of 4.62 million compared to a downwardly revised 4.47 million in March (http://www.realtor.org/news-releases/2012/05/april-existing-home-sales-up-prices-rise-again), I have to admit I was a bit skeptical. The local market is not exactly humming along, so as I read in the above referenced NAR release that April’s existing home sales rose 10% over the figure from April 2011, I thought some perspective is needed.

Let me quote you some housing statistics. The number of Montgomery County single family homes that sold increased 5.1% in February, 14.7% in March, 33.9% in April and 27.9% in May (MRIS data reported by the Greater Capital Area Association of Realtors®; gcaar.com). These numbers are not from 2012; but rather, these are the local stats from 2010 compared to closings from 2009. Yes, as you remember – 2010 was a spectacular year for local real estate!

Sarcasm aside, the number of Montgomery County single family home closings increased 5.8% during April 2012 (compared to 2011); and the number of Montgomery County condo closings also increased 8.1% during the same time. But, Montgomery County year-to-date settlements are still below the number of settlements that occurred during the same time in 2011 (-1.4% for single family homes; and -2.8% for condos). Although the 690 single family home settlements that occurred in April 2012 is higher than 652 that occurred in April 2011, the 2,034 single family home settlements that occurred year-to-date through April 2012 is lower than the 2,062 settlements that occurred the same period in 2011. Regardless, the number of settlements is far lower than what we have seen in past “normal” markets (for example, GCAAR reported that there were 849 settlements of Montgomery County single family homes in April 2001).

It must be noted that although the first half of 2010 seemed to be on a role, the number of 2010 Montgomery County single family home closings actually ended the year slightly lower than 2009. So, even though we have a month of some positive news, let’s be cautious about making assumptions.

housing dataOk, I know you’re going to ask about NAR’s statements about rising home sales. Sure, NAR chief economist, Lawrence Yun, was reported to say that “the housing recovery was underway.” He was also quoted to say, “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices…”

However, the latest release of the S&P/Case-Shiller Home Price Indices (May 29th; standardandpoors.com) states “that all three headline composites ended the first quarter of 2012 at new post-crisis lows.” Although there was a 1.6% decrease in home prices in the Washington DC metropolitan area in February compared to January, there was a 1% increase in March compared to February; however, prices have decreased 0.6% for the year.

Although media headlines shout that housing has turned a corner, it’s a little premature to assume that the housing market has normalized with only one month’s data. The housing market has turned so many corners in recent years that I think we’ve made several circles! Just as in 2010, let’s see the final tally. There’s still some data to collect; let’s see how the housing market fares through the remainder of the summer.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 28, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Are internet Realtor® reviews real or fake?

internet Realtor reviews

The internet is a great tool. It conveniently provides access to information about real estate activity and home sales to assist you in your decision making. It’s only natural that people tend to gravitate to the internet because it provides somewhat of a buffer from aggressive real estate agents; it allows a certain amount of anonymity. This may also be a reason for the rise in popularity of internet Realtor® reviews.

But, internet anonymity can be a two way street. Besides reading online what others are saying about your agent, without anyone being the wiser; online reviews are often posted without verification.

An August 19th New York Times article by David Streitfeld (In a Race to Out-Rave, 5-Star Web Reviews Go for $5: Printed August 20, 2011, on page A1 of the New York edition) is an exposé of the fake review business. Yup, fake online reviews. Streitfeld describes how in an effort for online businesses to appear better than the competition, “an industry of fibbers and promoters has sprung up to buy and sell raves for a pittance.” Streitfeld illustrates the “game” as it’s played; posts on websites such as Craigslist and help for hire sites offer a positive review for a fee.

Also known as “deceptive opinion spam” or “review spam, Cornell researchers claim “these fake reviews are fictitious opinions deliberately written to sound authentic, in order to deceive the reader.” They conclude that the detection of fake reviews is “well beyond the capability of human judges;” and recommend an analysis of reviews to include, among other things, psycho-linguistically motivated features. (Proceedings of the 49th Annual Meeting of the Association for Computational Linguistics, pages 309–319, Portland, Oregon, June 19-24, 2011.)

“There have always been fake reviews from employees and competitors,” states Greg Sterling, of Sterling Market Intelligence, in a March 7th blog post “Fighting the Rise of Paid Reviews.” Describing the increase of “guaranteed positive reviews” for a fee, “… the increasing importance of online reputation to consumers and the potential influence on rankings that reviews bring the stakes are higher than ever. Hence the emergence of services that will guarantee positive reviews.” He further states, “I don’t know this but my guess is that somewhere in some room … there are minions writing positive reviews without ever having actually used the business or visited its location.”

The National Association of Realtors® (NAR) code of ethics prohibits deceptive practices, which includes posting or encouraging fake reviews. However, Lani Rosales of AGBeat argues that there has always been an element posting fake Realtor® reviews and testimonials (“Sketchy new trend – hiring fake online review writers”).

Internet Realtor reviews

What to do?

Suresh Srinivasan of agent reputation platform ReachFactor (ReachFactor.com) stated in email correspondence that review spam is a “big and growing problem. It’s extremely cheap to pay others …to write a review of any service professional.” He states that many websites get “gamed” because they only require the reviewer to register but don’t actually verify that a transaction took place with the agent. He points out that even though some popular real estate websites try to read every review, it is not entirely effective in weeding out the fake reviews. Mr. Srinivasan’s company verifies factual information collected about Realtors® so as to ensure consumer transparency as well holding Realtors® to a higher ethical standard.

by Dan Krell. Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

What is DOM; why some agents choose to manipulate the material facts about DOM


by Dan Krell © 2009

“Days on Market,” or DOM is self descriptive – it is basically the number of days a home is “active” on the market. DOM is used by real estate professionals and economists to gauge the market and home inventory. Since real estate is a major component of the United States economy, these statistics are used by economists in examining the condition of the real estate market and the economy as whole.

Home buyers and sellers have also given meaning and significance to DOM. To some home buyers, the belief that an inverse correlation exists between the length of time a home is on the market and the seller’s motivation gives them the justification to make a lowball offer. But is the correlation accurate? If a home has been on the market 120 days when the average is 60 days, the seller maybe more motivated- but not necessarily ready to take a lower offer. Realistically, the high DOM may be an indication of a home that is over-priced to begin with; some sellers may reluctantly reduce the price as time goes along, while some are apt to hold on to the higher price.

In addition to supply and demand, home prices can be correlated to various factors through equilibrium models, such as price and condition, and price and size. As far as I know, no one has discussed an equilibrium model to indicate a correlation between price and DOM; DOM is not only dependant on market conditions but also dependant on variables such as seller’s personality and financial situation.

Just like home buyers, home seller’s assign meaning to DOM based on conjecture rather than sound reasoning. If a home is on the market longer than the average DOM, many sellers tend to focus solely on their real estate agent’s effort (or lack of effort); conversely, some sellers are led to believe they may have sold for too little if the home sells in less than the average DOM.

Real estate agents give credence to the emphasis of DOM placed by home buyers and sellers; and some agents add their own emphasis such that they are compelled to manipulate a material fact about a home. Yes, my local MLS (MRIS) considers DOM a material fact about a home. Manipulating DOM is not only manipulating a material fact, it also appears to be a violation of National Association of Realtor’s Code of Ethics Article 1 (“…REALTORS® remain obligated to treat all parties honestly.”) and Article 2 (“REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property…”).

If the reasoning behind the emphasis for DOM by home buyers and sellers is speculative, and the DOM may be manipulated by the listing agent any way- what’s the big deal anyway? I honestly have never had anyone list DOM as criteria for their home search. Need more information about DOM? Talk to your Realtor about DOM and its significance to your purchase or sale.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

Overcoming the new obstacles of selling your home


by Dan Krell © 2009

The 2008 National Association of Realtors Profile of Home Buyers and Sellers reports that 93% of home buyers surveyed indicated they financed their purchase (Realtor.org). Real estate agents have become accustomed to and usually can anticipate most hurdles that came with a typical transaction; agents can usually prepare home sellers for home inspections, FHA appraisals, and shaky buyers.

These days, however, home sellers may feel as if they are trapped in an obstacle course. If finding a home buyer isn’t enough, home sellers are finding that closing the deal is getting more difficult as changes in the mortgage industry creates new obstacles.

Changes in home buyer sentiment and mortgage underwriting guidelines have created a new trend – uncertain closings. A continued disparity between the price home sellers are asking and what home buyers are willing to pay, along with increasingly tightening mortgage guidelines and indeterminate appraisals would make any home seller skittish.

Tightening mortgage guidelines are increasing the pool of unqualified home buyers, while questions of home values have made some closings problematic. Such obstacles have forced some real estate agents to using creative techniques to get their clients to close; some of these techniques have not been used since the 1980’s, when lenders also tightened underwriting guidelines in the wake of the S&L crisis.

One technique is the use of seller financing and land contracts. Home sellers looking to sell to a home buyer who does not qualify for a mortgage and/or get a higher sales price can possibly bypass the mortgage lender by offering seller financing. Once the note is consummated, the seller may decide to sell it to an investor; there are many investors who specialize in purchasing private mortgage notes.

Seller financing is not for everyone. Besides the fact that many home owners need the proceeds of the sale to purchase another home, it requires the seller to assume the risk of the home buyer defaulting. Additionally, sellers looking to cash out their notes may only get a percentage of the sale because investors purchasing these notes usually offer a percentage of face value. If considering seller financing, it is a good idea to consult an attorney to assist you and ensure you comply with local and federal laws.

Another creative technique that is gaining in popularity is “permanent” home swapping. Home swapping has been around for a long time, and has been popularized as a means of ensuring short term accommodations for vacations and sabbaticals. In fact, home swapping has become more chic as evidenced in its use in a recent episode of “Million Dollar Listing” (Bravo Channel; www.bravotv.com/million-dollar-listing) when two parties liked each other’s properties but couldn’t agree on terms. Due to an increasing number of home sellers consider permanent home swapping, more resources are becoming available to identify like minded home sellers. Of course, an experienced attorney should be consulted to facilitate such a transaction.

Although market conditions continue to stabilize, home sellers are encountering new obstacles to selling their homes. Real estate agents and home sellers are increasingly considering alternative and creative means to overcome problems. Before you embark on non-traditional means to sell your home, consult an attorney and other professionals for information that will help you determine if creative home selling is for you.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 30, 2009. Copyright © 2009 Dan Krell

Real Estate Wakeup Call

by Dan Krell © 2009

If the real estate industry is waiting for a wakeup call, it may be coming in May 2010. Three events that are expected to either end or peak next May include: the Fed’s discontinued purchases of mortgage backed securities, end of home buyer credit, and expected foreclosure increases.

In a November 19th press release, the Mortgage Bankers Association (mbaa.org) reported that delinquencies on residential mortgages have increased to 9.64% for the third quarter of 2009, which is a 40 (basis) point increase from the second quarter of 2009 and a 265 (basis) point increase from the same time last year; the overall foreclosure rate is up 35 (basis) points from the third quarter of 2008. The report claims that FHA and “prime” mortgages make up the bulk of the delinquencies. MBAA Chief Economist Jay Brinkman stated in the press release that “because mortgages are paid with paychecks” increased unemployment will “drive up delinquencies and foreclosures” [increases].

As delinquencies and foreclosures are expected to peak next year, both the home buyer credit and Federal Reserve purchases of mortgage backed securities are expected to end in April 2010. What? Yes, not only is the home buyer credit is to end, Steve Cook of the Real Estate Economy Watch reported that the National Association of Realtors agreed to not ask for another extension of the home buyer credit (www.realestateeconomywatch.com/2009/11/the-last-days-of-the-homebuyer-tax-credit).

The Fed has been buying mortgaged backed securities to ease the market and keep mortgage interest rates low. The program, that began earlier this year, is expected to end as the Fed slowly eases up on the mortgaged backed securities (also reported by Steve Cook).

We are anticipating seeing if the programs to forestall a real estate disaster have done what they were supposed to do. So, we may wake up to a gentle alarm clock next spring or a trumpet blasting in our ear.