Debunking myths about foreclosures, timing the housing market, and hiring the “big name” agent

by Dan Krell ©2012

Debunking common real estate myths.

real estate myths debunkingAs a real estate agent, I often encounter people who talk about common and persistent real estate myths.  In recent years, these few seem to be among the top myths:

Myth #1: “If you wait until the market bottoms out, you’ll get the best deal”
Counter point: “People trying to time the market may find in hindsight that they will have reacted either too soon or too late.”

Anderson & Harris, in their reveling study Timing the market: You don’t have to be perfect (Real Estate Issues 35, (3) (10): 42-42-50) indicated that you don’t have to be perfect when timing your purchase and sale of a home.  They suggested that you could do just as well to aim your sale during market peaks and your purchase during market lows; however, they conceded that you would most likely know in hindsight when the market is at a peak or low.

Their results demonstrated that the typical “buy and hold strategy” over a thirty year period results in an annualized return of 8.18%; however, buying when a recession has ended with a predetermined sale period yields a wide range of return that ranged from 13.38% to 1.42% annualized total return.

Myth #2: “Buying a distressed home will result in a good purchase.”
Counter point: “There is inherent risk when purchasing distressed homes.”

There is inherent risk when purchasing distressed homes, regardless if they are foreclosures, bank owned homes, or even short sales.  Although short sales are often occupied, foreclosures and bank owned homes are often vacant for many months; these homes are often sold “as-is; where is” meaning you are purchasing the home regardless of the condition of the home.

Besides the purchase and anticipated fix up costs, unanticipated repairs and expenses are often encountered.  However without risk, there is no reward; due diligence, conducting inspections, and hiring the proper representation may reduce the risk and make your purchase a positive experience.

Myth #3: “The ‘big name’ agent with the most home buyers will sell my home quickest and for top dollar.”
Counter point: “Home buyers typically search for homes by characteristics and location, rather than searching for homes sold by individual agents or brokers.”

real estate myths debunkingI have never had a home buyer tell me they want to see (or buy) a home because it is listed by a particular agent or broker.  Rather, home buyers typically search homes by price, physical characteristics, amenities, and/or location.  Home buyers will view your home if it matches their search criteria, regardless of who listed your home.

When interviewing listing agents, look beyond the sales pitch to list your home, and ask for real data and sources to back up claims.  Agents will often not discuss the homes they could not sell; asking about the homes that did not sell as well as the reasons behind the non-sale may be more revealing than flatly accepting claims made by the agent.  Asking for references of satisfied clients of homes that sold as well as homes that did not sell is useful to not only get a recommendation, but also understand how the agent conducts business.  Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire. Protected by Copyscape Web Plagiarism Detector

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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 July 23 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

The $1 foreclosure solution

The buzz last week came from a Federal Housing Finance Agency’s (FHFA) request for information (RFI). The RFI is “seeking input on new options” on the disposition of foreclosed properties that are held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). FHFA ( is the “the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.”

The August 10th release stated that the FHFA, in consultation with HUD, is seeking to stabilize the housing market by exploring “alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.” FHFA Acting Director Edward DeMarco stated that although individual homes will continue to be sold, there is an interest in “pooling” (i.e., bulk sales) assets if it can “reduce Enterprise credit losses and help stabilize neighborhoods and home values…”

Among the objectives outlined in the RFI, included are: a reduction of REO portfolios; a focus on property repair and rehabilitation; and a focus on neighborhood and price stabilization. However, it appears as if the outcome may already be weighted towards a rental solution (“FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures”), even though an objective of the RFI is to use “analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.”

If one intention of the FHFA and HUD is to implement a rental program, then it seems only appropriate to examine how the “lease for deed” program, that Fannie Mae embarked upon in 2009, has performed and impacted neighborhood home values and stabilization.

However, another possible solution with a focus on home ownership and community involvement comes from the recently deceased Governor William Donald Schaefer. Although many may remember the former Governor of Maryland, but many probably do not remember William Donald Schaefer as Mayor of Baltimore. As Mayor of Baltimore, Schaefer oversaw some of the most intensive urban renewal and revitalization projects of the 1970’s, some of which were mimicked around the country. One of the most memorable, at least to longtime Baltimore residents, is the $1 home.

As the deterioration of downtown Baltimore escalated, the City was faced with a growing number of vacant homes that among other things significantly depreciated property values. Along with commercial redevelopment, such as the Inner Harbor projects, a plan for residential renewal was undertaken that at the outset appeared risky and incomprehensible.

The program involved the City purchasing blocks of homes and then selling them to owner- occupants for $1. The idea was to basically provide affordable housing to home owners who would agree to not only rehabilitate the property (rehab loans were provided by the City), but to also live in the home for a number of years – thus turning rows of vacant homes into desirable neighborhoods that shouted pride of ownership as well as increasing property values and stabilizing the community (

Although the FHFA may be focused on “transferring” their REO portfolios by selling as many homes as they can non-resident investors, hoping for renovations and affordable housing from an absentee owner; however, a more viable solution may be found in owner-occupants, who are invested in maintaining their homes and participating in their communities.

by Dan Krell
© 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.

Is there risk in buying distressed properties?

foreclosureby Dan Krell &copy 2009

It’s not a secret that home buyers are flocking to distressed properties for the perceived bargains. Bargain distressed properties (including bank owned homes and short sales) are listed below retail prices, mostly due to the condition and other factors. “Buyer beware” is a saying that home buyers should consider when purchasing distressed properties.

Experienced real estate investors know the risks involved in distressed propeties, which they calculate in their purchase prices. However, the average home buyer may not know the extent of the risk at the exciting prospect of buying a lower priced home.

Not all distressed sales are the same. To understand the differences, you have to know who owns the home as well as the lender’s role in the sale. A short sale is an owner resale where the home owner is selling for less than what is owed to the lender. Although approval from the seller’s lender is required for such a sale, the bank is not the owner yet as the home has not been foreclosed on. On the other hand, bank owned homes (also known as REO property), has been foreclosed on and is now owned by a bank due to non-payment of the mortgage.

During a short sale, the seller’s lender goes through the loss mitigation process to determine how much of a loss they are willing take on the sale. This process is what typically extends the time to closing, sometimes more than three months. Whereas the loss mitigation process is usually completed prior to listing the home, the sale can be delayed too – but usually for title issues.

Both sales require you to purchase the home “as- is;” however because the short sale seller is usually accessible, you may have the opportunity to negotiate some repairs. Additionally, the short sale listing is sometimes in better condition than a bank owned home because the home is usually still occupied by someone as well as having recent updates.

Bank owned homes are vacant and the condition may vary due to the bank’s decision to make repairs prior to listing the home. However, since the home is vacant, vagrants, animals and weather can further deteriorate the condition of the home. If the home is in need of repair, the bank will not make the repairs nor will they allow any repairs to be made prior to settlement. If the previous owner made improvements without permits and/or there is termite damage, you are stuck with any remediation.

A short sale home seller will usually provide common ownership community (such as HOA) resale documents to you as required. Fines incurred for late fees and other issues are usually cleared by the seller. However when purchasing a bank owned home, you typically need to approach the common ownership community to negotiate any fines and pay for the resale documents.

Additionally, sellers in both sales urge you to use the title agent assisting them with the sale. However, you should choose a title attorney to represent you to minimize title issues and ensure you have a marketable title.

Without risk, there is no reward. You cannot entirely eliminate risk; however, due diligence, conducting inspections, and hiring the proper representation can reduce the risk that is inherent in purchasing a distressed property.

This column 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 August 17, 2009. Copyright © 2009 Dan Krell

Nationalize Housing?

real estate Is Nationalized Housing the next step? Probably not.

However, if you would have told me a year ago that there would be discussion about nationalizing private banks; I would have looked at you as if you had two heads! However, recent economic events has many people talking about nationalizing this country’s private banks, including former Federal Reserve Chairman Alan Greenspan (who was reported by the media to say that nationalizing banks temporarily may be necessary).

Given that bank capitalization has been at risk due to devalued and toxic assets, some favor the Government taking over failing private banks to recapitalize and restructure them. The idea of vested Government control and ownership has many pros and cons, and there is no “map” to tell us where nationalizing banks would lead.

How bad is the problem? A recent Financial Times article (Insight: Time to expose those CDOs; February 26 2009) reported that $305B of the $405B Collateralized Debt Obligations of Asset Backed Securities issued between 2005 and 2007 went into default. One third of those CDO’s were from mortgage backed bonds, also called mezzanine CDOs. Although recovery rates for defaulted CDO’s in general are low, it is estimated that the recovery rate for mezzanine CDOs is 5%. In other words, $5,000 is recovered from every $100,000.

Although there is heavy debate of nationalizing banks, some argue that Government stock ownership (as in last week’s 40% purchase of Citigroup) is a form of nationalization such that the Government can apply pressure to accomplish its goals; while others talk of bank nationalization as a socialist inroad. Other critics have argued that the Federal Deposit Insurance Corporation (FDIC) has been essentially nationalizing failing banks for years. Although deposits at failing banks are insured by the FDIC, the FDIC manages the receiverships to liquidate the failing banks’ assets. Not quite the total control of and ownership that nationalization inspires, but the model has been effective in the past by tying up the loose ends of a private bank failure.

A further extension of the bank nationalization would be to nationalize housing. As foreclosures and mortgage delinquencies contribute to the sliding housing market, Government bank ownership could be used to nationalize housing to stabilize home values. Well, not the entire housing market, only the non-performing segment which contributes to the toxic assets losses. By assisting home owners in foreclosure or at risk of foreclosure through direct Government control and ownership might lower foreclosure rates, possibly reduce further real estate market loses and assist those losing their homes.

Rather than the Government entering the mortgage servicing arena, the ideal nationalized housing program (through Government controlled lenders) would allow struggling home owners to pay what they can afford. In return the home owner would give up some (if not all) of the future equity stake in their home when they eventually sell.

Would nationalizing segments of the housing market be the answer to rising foreclosures? Of course not. Nationalizing any industry is a precedent that puts the Government on a slippery slope. Unless the questions of responsibility, ownership, control and intention are clearly defined, the unintended consequences of nationalization can swallow any industry- not to mention home ownership.

Original published at

By Dan Krell

This column is not intended to provide nor should it be relied upon for legal and financial advice. Copyright (c) 2009 Dan Krell.