Finances

This is Part II in a Series on Short Sales. See Part I, Buying Short Sales.

Due to certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, the I.R.S. could consider debt forgiveness as income to the seller/borrower, and there is no guarantee that a lender who accepts a short sale will not legally pursue a seller for the difference between the amount owed and the amount paid. This amount is known as a deficiency. Whether you are a buyer or seller, always obtain legal and accounting advice from competent professionals.

General Principles for Sellers:

Not an easy alternative to foreclosure - The deficiency will be accounted for in some fashion. It can be 100% loaned to the seller in the form of a promissory note, which they then must repay. If any portion of the deficiency is “written off” meaning that the bank absorbs it, it will likely be reported it as 1099 income to the seller or even as a judgment which will show on the sellers credit for years. Read the rest of this entry »

When lenders agree to a short sale in real estate, they are accepting less than the total amount due on the loan. Not all lenders will accept short sales and not all sellers or all properties qualify for it. Sometimes it may simply make more financial sense to the lender to foreclose.  However, under the right conditions, a short sale can save lenders many costs associated with the foreclosure process - attorney fees, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster and that time advantage helps to mitigate losses. The job of the buyer/investor is to convince the lender that it will fare better by accepting less money now.

General Principles for Buyers:

Lender may not accept your offer, even if the seller does - Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you “steal.” Many short sales fall through if the Broker Price Opinion comes in too high.

Check the public records - Do your research. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). If there are two loans, you could have a problem. If a seller owes $160,000 on the first and $40,000 on the second, offering $160,000 leaves nothing for the second. The first will need to give some consideration to the second in order to gain its cooperation. Read the rest of this entry »

Unsold listing inventory is arguably the biggest obstacle in our current real estate market. It creates downward price pressure which of course impacts consumers and real estate professionals alike.  I will save my discussion on strategies to effectively move listing inventory for my next post.  Before I do that, though, I feel it is critically important to preface this with an explanation of the impact of unsold inventory on financial performance and sales agent productivity levels.

Let’s assume we have an “average” brokerage (based on recent national results available).  This company has 24 agents who average 10 closed transactions per year at an average sales price of $212,000.  The average broker commission rate in this example market is 5%.

Based on those figures, the company would have annual production of 240 transactions (assume for simplicity half are list-side, half are sell-side), $50,880,000 in sales volume, and $1,272,000 GCI.

Let’s assume that due to the glut of inventory, the company successfully sells only half the listings it takes (it therefore has a 50% listings ‘absorption rate’ aka listing ‘conversion rate’).  The company wants to see this rate back up to the 70% it was achieving only a couple years ago.  Here’s how the effect of that movement would play out:

Read the rest of this entry »

Photo by JOE M500/Flickr.com

Posted by Nicolai Kolding

I’m an insomniac.  That hardly makes me unique around here - it’s a bit of a running joke in our halls as we see each other in the morning:  “So, how many times did you wake up last night?!”  On many nights there are just too many ideas spinning around in our heads to allow for a peaceful sleep so we’re up like a flash at 3 a.m., reaching for pen and paper to write them down before trying to doze off again.

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Posted by Nicolai Kolding

Today I was invited to speak on a panel at the RISMedia Leadership Conference.  The topic was “5 Ways Where You Can Cut Costs-and Profit.” My five suggestions were:

1)  Index Commission Plans.  This is about properly resetting the thresholds at which higher commissions are paid out so that the schedule is aligned with inflation.  This idea also works with desk fees or other fees so you should apply it there, too.  For a detailed explanation, see my indexing post from earlier this year.

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Posted by Nicolai Kolding

Yesterday, Jim Cramer of CNBC’s Mad Money “called” the housing bottom as coming in July of 2009.  Whether or not you agree with his analysis and prediction, I’m sure there are many (including some who see him as no friend of housing) who will embrace this as welcome news to an industry that so badly needs it.

I view this with muted optimism.  On the one hand (whether I like it or not), people like him wield some influence on the market and I can’t help but smell a self-fulfilling prophecy taking shape if more predictions like this make news.  On the other hand (and here’s where I’m focused specifically on professionals in the industry), headlines like this can have a way of getting people to lose focus on the pain that could still lie ahead.

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Posted by Nicolai Kolding

On July 3rd, I proposed three floorplans for a residential sales office.  I’ve taken all of the comments that followed into consideration and would like to offer up just one more plan:

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Posted by Nicolai Kolding

I think it’s well past time for the layout of the “traditional” real estate office to change.  As a customer, I see woefully little that is designed around my needs.  As someone with a vested interest in the success of this industry, I see wasted costs galore that make my stomach churn.  As I’ve written before, I believe we can do much more with much less.  I can’t imagine a better time to move forward with revolutionary designs.

With that in mind, I recently challenged myself to draw up some floor plans.  A few ideas were floating in my head but I needed to get some real measurements to make them useful.  So I casually paced out floors of all kinds of different business I thought we could borrow designs from.  I sized up office furniture with my trusty tape measure.  I played with a snazzy interior design program.  I mumbled to myself a lot.  And, in the end, I opted for old-fashioned pencil and grid paper so I could free-form away when the mood struck.

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Dear brokerage owners and managers:

I know times are awfully tough right now and, believe me, I’m not trying to kick you while you’re down. But I have a nagging question I need to ask: have you considered the possibility that you may never make more money than you are today? I’m not even thinking about what you made, say, in 2004 or 2005. I’m talking about never earning more than you are right at this very moment. Think about that possibility for a minute. What if this is as good as it gets?

No, I don’t think the housing market is doomed. Quite the opposite; I’m bullish long-term. Home values and transaction sides will increase again. In some places, this is already underway. In many others, the turnaround appears near, even if the pace could be only moderate. Despite this, I still believe few brokers will see any real gains because too many are betting the ranch, so to speak, that these two drivers alone will whisk them back to profitability. Too few are thinking realistically about that most critical of revenue drivers: their percentage take per transaction (also known as broker commission rate or BCR).

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Posted By Bob Albanese 

In this time of almost apocalyptic change on the consumer side of our business, evolution must also continue in the area of business consulting and service support from a B2B perspective. It seems to me that the very word “consulting” is being associated with a more generalist type of role rather than one of a serious business-development function. Innovation in producing creative financial reporting structures, business analytics, menus of strategic services, and competitive analyses is needed in order to help real estate brokerages thrive and expand their each.

Over the past nine years, I have been in the enviable position of having conversations with principals from many real estate organizations across the United States and Canada. Meetings would often lead to points regarding the support required in order to remain competitive through market changes. The results of those conversations can be summed up in the following four key observations: Read the rest of this entry »