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Tuesday, September 29, 2009

Keeping Listing Agents Honest - A Modest Proposal

Recently I was competing for a listing with another agent. We were both asked how much real estate we had sold in the last 30 days. For myself I guessed (correctly) about $1 million, but the other agent said $1.7 million. When I got home I looked him up on the MLS. He had sold one small property in January and another in February -- nothing since! Agents can indeed lie to prospective sellers and the seller has to take their word, because there is no way to verify past sales, only current listings!

Back in April 2008, I competed with an agent for a $685,000 listing (which I got).  The seller showed me the listing presentation which the other agent had left behind.  That agent claimed to be the city's top selling agent for over 10 years straight selling over 100 listings per year.  Since I'd never heard of him, I looked him up on the MLS and found that he had averaged under 20 sold listings per year in the last three years and had not sold any of his own listings or any other agent's listings in the previous 2 years!  (He claimed he had a database of buyers waiting to buy a "home like yours.")  It was outrageous, and I wrote about it without naming him in my newspaper column. (  A couple colleagues guessed who I was talking about, which surprised me!  My only regret is that I didn't file an ethics complaint against this agent, because he is a Realtor and bound by the Code of Ethics which says you should not lie about your statistics.

I'm thinking of creating a website on which sellers could get accurate performance statistics on any agent usng the MLS. It would involve the seller giving the agent's name and someone with MLS access would look the agent up on the MLS and send a report. Do you think this is a good idea?

PS: I don't want to do the analysis myself -- and don't have the time, either. But it requires access to the MLS to do the analysis. One solution would be for the local Realtor association to farm out the assignments to volunteer members whose reports would be anonymous. This should not be a way for one agent to win clients away other agents, just to keep agents honest and give sellers some way to verify perfomance claims.  I think we owe this integrity check to consumers.  Don't you?

Wednesday, September 23, 2009

Regulators Prove the Road to Real Estate Hell Is Paved With Good Intentions

When I was a journalist in New York City, I was drawn to interview the highly successful police commander of The Bronx, Tony Bouza. I’ve never forgotten the secret of his success which he shared with me. He said — paraphrased here — that if you want to find out what’s not really working in any organization, don’t talk to the chiefs, talk to the indians.

I am reminded of Chief Bouza every time I read about the regulatory “fixes” being handed down from on high. It’s as if those in power are grasping tor dramatic fixes without any input from those involved in the day-to-day business of real estate..

Twice, for example, I have written about the new appraisal nightmare called the Home Valuation Code of Conduct (HVCC) forced upon our industry by New York Attorney-General Andrew Cuomo. Under threat of litigation, Fannie Mae and Freddie Mac agreed to institute rules to keep loan officers and real estate agents from selecting or communicating with appraisers, as the “cure” for appraisal fraud.

The result has been disastrous. Everything we in the business had predicted (and more) has come true, such that 37% of Realtors surveyed by NAR this June — just one month after implementation of the HVCC — said they had had at least one transaction fail to close because of this stupid regulation. Space doesn’t permit me to go into all the details, but you can read them in my Jan. 22nd and May 14th columns at

Now here comes yet another ill-conceived regulatory change threatened for Nov. 1 implementation, this time from the FHA, pertaining to condo approvals.

For years, it has been the rule that in order to qualify for FHA financing, a condo must be in a complex with at least 50% owner occupancy. This was easy to calculate because the condo management office could readily provide this information.

Well, starting Nov. 1, 2009, it will also be required that no more than 30% of the units in that complex be financed by FHA loans. The management company won’t have this information. The only way to verify this would be to pull from public records ALL the deeds of trust for all the units in the complex — an inconceivable hurdle.

Applying Chief Bouza’s lesson, I’d ask regulators to talk to Realtors and loan officers, not just themselves, before issuing such regulations.

[Published Sept. 24, 2009, in the Denver Post's section. Previous columns can be found online at]

Sunday, September 20, 2009

Mortgage Issues Exacerbate the Already Difficult High-End Real Estate Market

(Published 9/17/09 in the Denver Post)

By Jim Smith, Realtor

My August 27th column detailed the seller’s market for lower-priced homes and the buyer’s market for higher-priced homes. In that column, I attributed this dichotomy primarily to the $8,000 first-time home buyer’s tax credit, which naturally favors low-priced homes (and which expires on Nov. 30th).

One could reasonably argue that the real estate recovery we’re witnessing now is artificial due to that tax credit, especially when you look at the slowness in the market for homes over $400,000. For example, I have a wonderful solar-powered home in Golden’s Mesa Meadows subdivision listed at $500,000 that hasn’t had a single showing in the last three weeks, even though it is well priced — without factoring in the free electricity from the sun!

Yet, homes under $250,000 are getting multiple offers and even selling above their listing prices.

So what’s going on?

Yes, the tax credit is disproportionately stimulating the lower-priced market, but financing has become disproportionately more difficult for the higher-end market.

When you have to borrow over $417,000, you are in the “jumbo” not “conventional” mortgage market, and what was possible just two years ago is no longer possible, according to the mortgage brokers I deal with most.

Previously, a common strategy was to get a $417,000 first mortgage plus a second mortgage covering the balance up to 90% of the purchase price. Putting 10% down in that market was much more doable for buyers than today’s requirement of getting a single jumbo mortgage for only 80% of the purchase price. Second mortgages are simply not available anymore. FICO score and debt-to-income requirements are also far more stringent now.

At the low end, buyers can put down as little as $1,000 (see my previous columns), but 20% of a high-end home is $100,000 or more, and those buyers are often unwilling to liquidate depressed stocks or other assets to come up with a 20% down payment.

Such buyers could take out a home equity loan against another property to provide additional cash, but nowadays, unlike before, you can only borrow up to 80% of that other property’s current value, vs. 90% or 100% in the past.

Until these financing constraints are addressed, a recovery in the high-end market seems unlikely to me.