Keepin' It Simple Too

Everything you need to know about the tax credit is available online, but it's difficult to wade through all the data and all the websites to get simple questions answered. This excerpt from a set of questions and answers, provided by my good friend Sue Serra of Gabel Marketing & Real Estate Brokerage, Inc. seemed to catch most of the things I thought were important. The full set of FAQs and links can be found at http://www.federalhousingtaxcredit.com/faq2.php. My thanks to Sue and my advice to you to call one of us, or your own trusted real estate professional, to get some help on how best to use these tax credits to your advantage.

The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).The following questions and answers provide basic information about the tax credit.

Who is eligible to claim the $6,500 tax credit?

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

What is the definition of a move-up or repeat home buyer?

The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

Are there any income limits for claiming the tax credit?

Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. Your trusted tax professional can provide further details.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.You should always consult your tax advisor for information relating to your specific circumstances.

How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information.

I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010). In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Be sure to check with a tax advisor in cases where a HUD-1 form is not used at settlement to be sure you have sufficient documentation to attach to IRS Form 5405.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with an MRB home buyer program.

I am not a U.S. citizen. Can I claim the tax credit?

Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community.

HUD allows “monetization” of the tax credit. What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes. For details you should speak to a trusted mortgage professional or visit the FHA website.

If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

My number is 773-457-2495 and my email address is carmen.rodriguez@cbexchange.com. Give me a call or send a note and let's sort out how this credit can be used to your advantage!

The Relevance of Realtors

I suppose its not funny that I've had this prompt blinking at me for quite some time and I can't think where to begin, given the subject matter. I suppose its not funny, but it is making me laugh to myself.
I decided to write on this topic after I worked with a friend today on a presentation he had to prepare for his bosses. He had to describe the top three qualities of his office, his company, and himself as a leader. It got me to thinking about how important it is to work in a healthy office, with a good company, and to have strong leadership. I began to mentally tick off the things I think are most positive about my office and my business. And then, I turned on myself. How valuable am I? How relevant am I?
Fade to black. Enter blinking prompt.
How valuable am I? To the average seller, without exaggeration, I believe I'm the difference between success and failure. I believe that about myself personally, and I believe it about my profession as whole.
People don't sell fruit out of their pants-pockets for a reason. They sell fruit from markets because there's a system in place to protect them, the consumers and the fruit. And while fruit has its place on the lifetime value scale, I'd say you could probably value your home a bit more than a piece of fruit. So why on God's green earth would anyone take a product worth 300 thousand times the value of a piece of fruit and treat it so cavalierly? A little plastic sign on the front lawn is how you're going to handle the most important, most expensive to own, and most valuable to keep, investment you've got? You might as well buy your fruit out of some guy's pocket. Good luck with that.
No doubt, there are those who'll strike it lucky and sell their homes on their own. But luck is transient and temporary. The overwhelming majority of home sellers trying to do it alone eventually turn to professional real estate agents after spending considerable time being overpriced and overwrought. The clean-up of faulty thinking and failed sales strategy in these scenarios is a 'freebie' in the agent's marketing effort. Worse? In this economy, those months wasted translate into jaw-dropping numbers rolling back from the potential sales price, as values dropped precipitously in some markets over the past three years.
Trying to save a buck? On, in some cases, a more-than-a-half-million-dollar investment? Does that really seem smart?
I'm a qualified, licensed professional with training and experience which qualifies me to conduct complex analysis of financial data, market trends, values, forecasted conditions and so on. Working in my favor, I'm also sharp as a tac. (Ok, ok, I can't always find my car in the mall parking lot - but I feel the car has an unfair advantage, blending in with all those other cars out there...)
To a homeowner, his house is personal, it's special, it means something. I get that. But I also know the house is a product and it has to be branded, marketed and, with my expertise, sold in a specific niche to a particular buyer. I track things like rental seasons (for investment-specific properties), college graduation seasons (which impact rental and condo sales), weather (it affects sales!), economic announcements, (jobs numbers have a direct and almost immediate impact) new financing programs and more. Is the average home seller doing all that? Of course not.
That's why, eventually, I'm necessary. I'm important and valuable and most assuredly, in this market, I am relevant. If you're a professional real estate agent, value yourself. Know your worth. You bring something to the table that no one can bring except you. If you're a home seller, know that just as you would hire a professional roofer to protect your home, a professional real estate agent is needed to protect your investment in that home. Don't go it alone. Don't treat your home like its worth less than a piece of fruit. You may end up with a bad taste in your mouth.
For more information on how I can help you make the right choices for your property, please don't hesitate to contact me at 773-457-2495.

It's Simple, But Not Easy

If you want to sell your property in this market you need to follow one simple directive: be the most appealing product out there. Period. There was a time when being good was good enough, but this is not that time. And there was a time when granite and cherry wood elicited all the 'oohs' and 'aaahs' you needed to get a buyer interested. That time, too, is gone.

Now is the time to view your property - your product - objectively and without passion. Your property is a product being placed on a crowded shelf in a market filled with shelves of similar products. Making matters more difficult, all the other manufacturers are cutting prices and flooding the market with specials and sales that make it difficult for you to compete. Shoppers in this market will walk right past bright colored packages and expensive wrapping to make a choice based almost entirely on value. Simple is the name of the game.

You know it's true because as a consumer in any other arena, you do it all the time. A couple of autumns ago you might have gotten the most expensive ingredients you could find for that first hearty pasta dish of the cold-weather season. Fresh noodles from the refrigerated section - maybe some seafood for a creole inspired stew; it all sounded so good and the expensive grocery store was justifiably beautiful to shop in. But now? Let's face it. The 29 cent box of pasta from the neighborhood market serves just as well at a table where your spouse may be worried about keeping a job, in a kitchen where heat is getting more expensive to maintain, and in a house where the value has been steadily declining for the past three years. No one's got money to waste, these days. It's just that simple.

Simple but not easy, when what's at stake is your most valuable financial asset. Nonetheless, to be successful in the sale you must place yourself in the position of the buyer. Stand in front of that shelf and look objectively at the selection. There are twenty 3-bedroom condos in the area. Some are priced well into the $400s and have all kinds of fabulous fixtures. But there are two in the upper $200s that you can fix-up yourself for much less money. With the more conservative stance that is today to spending what the little black dress has always been to fashion, which one will you choose? The answer is obvious.
It's antithetical even to us in the throes of making it happen. As a seller's agent, I am trained (and instictively desire) to seek the highest price possible for your asset. However, the truth is this may not be the correct objective in the long view. If what you want to do is take advantage of market conditions to upgrade to a bigger home, you must be willing to accept that buyers in your product category are trying to do exactly the same thing. They, like you, will be doing alot of simple mathematics. If you will lose $50,000 in anticipated equity on the sale of your property, but you will buy a property that will net you $80k, wouldn't it make financial sense to move? Is it worth it to pay a monthly mortgage payment for 10 months while your overpriced listing stays on the market unwanted, ultimately forcing you to lower your price to find a buyer? Or would it make more sense to price the product correctly in the first place and only make 4 payments before you sell?

A trusted and competent real estate professional will work with you to help you understand the value of your home from this simple product placement perspective, taking into account the competition from drastically reduced short-sales, bank-owned foreclosures, and desperate sellers. If he/she does not address this issue in your market analysis, fire him or her and move on to someone who knows what they're talking about. This is no time for foolishness. Your home is likely the most valuable asset you'll ever own and you need the guidance of a knowledgeable and honest professional. It is simple, but not easy.

If you'd like me to help you plan the sale or purchase of a home, please don't hesitate to call me at 773-457-2495.

To Extend or Not to Extend? The Question Du Jour.

• Boy oh boy the emotions are running high on this issue. So many Realtors® are weighing in as we approach the deadline for the $8,000 1st Time Homebuyers Tax Credit. If nothing happens, the program will expire November 30th. A bill in Congress to extend the credit has been making its way through the system. Now, in offices across the country, Realtors® are making themselves heard on the subject.
  In favor of extending, many real estate professionals believe that the $8,000 tax credit is responsible for the recent spike in home sales many have experienced. They believe 1st time homebuyers are the ones cleaning up the bottom of the inventory, a critical step toward recovery of values and implementation of a healthy, sustainable market. For agents who have been struggling to keep heads above water as the product inventory nearly drowned the entire industry, any subtraction of incentives is inconceivable.
  Our own survival, however, cannot be what we are prioritizing, because we are a short-sighted consideration. The long-term health of our businesses is tied to the broader health of our industry, which is inexorably tethered to the economy at large. To borrow a phrase, ‘It’s got to be all about jobs.’ And a home-buying tax credit does not address that issue.
  With that said, a fair-minded argument against extending the credit might also provide that creating a false premise upon which buyers will stand to make a purchase today may lead to a ride on the same roller coaster we just experienced. Some analysts have opined that the not-quite-ready buyer of today, using the $8,000 as an incentive to buy sooner than he might be ready, would remove that buyer from the market in, let’s say, 2 years when he might be more qualified, spend more, and be more likely to keep his property through a substantial increase in value. Of course, this scenario requires a finite number of buyers and an apples-to-apples comparison of properties and unknown future markets. Since these conditions do not, and cannot, exist the argument is pretty readily disassembled.
  On my personal tour of this spectrum of ideas I wander from one extreme to the other before pausing to find the center. The center’s gotten a bad rap in recent years, as political considerations often pander to a mealy-mouthed, unconvincing, centrist point of view in an effort to not upset the deaf and blind stalwarts at opposite poles. But the image of a bland and soft center is not at all what I see. Instead, I liken the center to the solid concrete post upon which the see-saw rests. Steady, simple, practical, not prone to radical shift. In the end it is the center that holds everyone up off the dreck and mire below. So instead of settling for a black or white solution, why not examine a compromise position? Or several of them?
  
  What if we did extend the tax credit, but this time for homeowners? An $8,000 tax credit would likely be an incredible boost to families trying to continue their records of on-time payments and responsible homeownership.
  
  Extend the tax credit but limit it to certain property categories. This way, you could specifically target the bottom-rung, instead of simply hoping that that’s where the homebuyers will be spending their money.
  
  Extend it but reduce the limit – or tie the limit to a show of savings. In this manner, you could ensure that home buyers are not simply relying on this one-time infusion of cash to make a purchase that requires a long-term commitment to fiscal responsibility.
  
  Don’t extend it, but install different programs to boost residential real estate recovery –
  
  Could the Habitat for Humanity be offered some assistance to take over foreclosed properties and rehabilitate them for resale, with an interest on the sale being returned to the government for its contribution?
  
  Could the government forego some reimbursements from the banks that received TARP money in exchange for reassigning foreclosed properties to the military? So that veterans could have an opportunity to integrate into residential communities at a reduced cost in thanks for their service? Would this take some of the weight off the burden the government – we all – carry in trying to accommodate the housing needs of our military families?
  
  Could the government provide some resources to high schools and laid-off construction workers to create bridge programs where high schoolers could use service hours to help clean-up and laid-off construction workers could contribute some help to fix-up abandoned properties in residential areas?
  
  What if the government participated in supporting a Realtor®-facilitated exchange system, like a vacation property exchange? An example might be a retiree offering a single family home in favor of a condo. A match would occur when a young couple looking to upgrade from a condo would find the retiree’s single family home. Instead of adding these properties to the existing market creating a greater stock of unsold homes, they could bypass the wait and get what they need more efficiently.
  
  I’d be happy to exchange these offerings for other ideas that would work better. I just think the solution cannot be an all-or-nothing stamp on the crisis. Either we extend this credit and we survive or we don’t and doom and gloom follow us all the days of our lives. Really? No.
  
  We can figure this out if we try. What do you think?
  

What's Wrong? Nothing.

Kenny Rogers would not be pleased. We sat at the table. And we counted. I'm not proud of it, but it's the truth.

In my defense, we did so for a reason. My husband and I have been working at breakneck speed for nearly all the year, something that is not uncommon in real estate. The uncommon part is the income - or more to the point - the lack of it. We had to figure out where it was and why we weren't feeling it. Nothing wrong with that, right?

As a matter of principle, we never count pending transactions. Corny as it may sound, my husband and I have stayed in this business because we love it. And as long as we can earn a sufficient living to care for our children and keep a decent home, we're in it to stay. Never has this commitment been more tested, however, than in the last two years, when the love has not felt very mutual.

Last year, we were fortunate enough to have success both in earning a comfortable income and in establishing market share in our area. Nothing wrong with that, right? It was, then, an ironic twist to find that even with all our success, we were still digging out of a pretty deep tunnel. Success, like beauty in the eye of the beholder, was starting to look like the cousin with the great personality your best friend wants you to meet. There were days, to be sure, we felt like folding our hands and walking away.

But we've stuck with it and this year we have had terrific success securing listings, preparing presentations, and working with clients willing and able to buy in the appropriate inventory slot. We have carried out an aggressive marketing campaign, continued to establish a brand identity, and networked ourselves to near-stupor. It has all paid off. Our annual business plan targeted a 'closed' dollar amount which we are on course to achieve. Picture an arrow pointed directly at a target, with a flawless trajectory and impeccable form. Nothing wrong with that, right? Now picture it frozen in mid-air. That's us. (I use the arrow analogy because it makes us seem sleek and forceful, but most days the real visual that comes to my mind is Wile E. Coyote as he charges off a cliff and halts mid-air before plummeting to a painful - if never fatal - end.)


We have had the same transactions in the pipeline for several months, without movement. In a Groundhog Day extraordinaire we seem to repeat the same motions over and over without effect. Its positively maddening! So as we approached the final quarter of the year without having met our mark, even though we knew we were on track, we had to do a quick review to determine what was going on.

As it turns out, the money's there. We're just sitting on it.

Say what you want to say about all the reasons that's the case, and I've got plenty to say, at least we know something's coming. Knowing that provides a salve for the psyche. And that's important for those of us embroiled in the hard work of digging through the rubble of the real estate boon, finding survivors, and laying to a respectful rest those who did not make it. We must periodically take stock of the good we do, the good we have in our paths ahead, and the good that will come when our work is done. Otherwise, the whole exercise takes on an air of futility that can be difficult to overcome.


For today, we have done just that. With renewed vigor and determination we forge ahead. And with deference to our friend Kenny, we'll just say we were counting blessings. Nothing wrong with that.

All In A Day's Work

Before I was in real estate as a full-time broker, I often wondered to myself about how cushy the job must be. 'Drive around in a luxurious car all day, show clients beautiful houses, write up some forms and then cash a check,' I thought. 'Thousands upon thousands of dollars in easy money,' I would muse. I think most people view real estate agents as opportunists - ready to make a quick buck at anyone's expense, self-serving, self-agrandizing. The picture of a Joan Crawford-type wearing a smiling growl and a lapel pin comes to mind. There are some of those. And then there are the other 98%.

Yesterday, the scene in our office played out thusly:

A 25-year-career agent spent several hours back and forth on the phone with some supposed buyer who claimed he had met her when his mother had purchased a home from her more than ten years ago. She had no recollection of him but did not want to be impolite. When he started using terms of endearment with her she became wary. When he insisted that she take him only to vacant properties and only alone she became so spooked she asked him to find another agent. She felt bad, though, and spent the day re-working the conversation in her head (and out loud with the rest of us) hoping she hadn't done him or herself a disservice.

A 15-year-career agent spent the day fretting over a property evaluation she has to do for an older client who's selling her home. She was particularly concerned about having to give the woman bad news - essentially the house isn't worth much more than when she bought it and this is to be the lady's retirement money. She'll likely net less than a middle-income salary, and only then if she's able to sell. Winter is coming. The agent spent the day practicing some upbeat way to tell her.

A 10-year-career agent stopped by my desk to chat. Her husband is dying of organ failure and can't get either of the two transplants he needs. He's on disability. She hasn't had any success in selling real estate so they've fallen far behind on their bills. Their gas was cut off this last week so they no longer have hot water for showers or cooking gas. According to the offices she's contacted, they 'make too much' to qualify for assistance.

A 5-year-career agent contacted me at the end of the day to vent a little frustration. She'd been working with a client for several months, trapsing all over tarnation to find the right property for folks who really hadn't narrowed down their requirements. It had been a long and costly shopping experience. Yesterday, she learned the woman had, on a whim, made an offer on another house with another agent. Capriciously discarded like an out-of-style scarf, the agent learned of the situation via an exuberent email from the client hoping the agent was 'happy' for her. She replied that she was and wished her well.

And me? I spent the day waiting for some contact from an old friend's wife. My husband had sold him a condo in a posh suburb more than ten years ago. He kept it even after he moved out to the west coast, renting it in the hopes of improving his equity position and building up extra money for the future. They've contacted us because the future has arrived. They have two little ones and can only afford to rent due to the astronomical cost of purchasing a home. It fell to me to have 'the talk' that so many agents are having with clients. The condo is not worth as much as they'd hoped and the better strategy would be to keep it and wait for the numbers to improve. If they opt to sell, it'll be a question of how much of their investment are they willing to see float away. In the meantime, I'm trying to figure out a strategy whereby they may not need to use our services, so they can save the extra money.

This is a snapshot of a typical day in real estate. Sure enough, there are the smiling faces and the hands shaking when a deal finally closes. There are the first time homebuyers who cry with relief and joy at the closings. There are babies that gurgle and giggle in the waiting room while their parents sign the documents on the house where the baby will grow up. There are beautiful, lovely, heartwarming moments that make it all worth it, no doubt.

But the image of vapid, over-lipsticked, chanel-drenched gargoyles remains poised over the real picture of who we are. It's unfortunate, but true. And I'm not sure how we fix it.

In the meantime, I'm working on marketing an estate sale for a brother and sister who recently lost their mother. Along with updates on showings and sales strategies, we're providing some hugs when needed as we wait with them for the long goodbye to their family home. Later, we're going to mow the lawn for a neighbor who's mower is broken and can't afford a new one. And tonight we'll work on an evaluation for a friend who's probably going to have to short-sell her home in the hopes of avoiding a foreclosure.

All in a day's work.

The Truth About Truth

We had a meeting today on the new Truth in Lending requirements set forth in the 2009 "Mortgage Disclosure Improvement Act" (MDIA). This act furthers the consumer protections installed in the Truth in Lending Act, which regulates lending practices for any credit secured by a residence. It's a complicated, multi-page, puffy-languaged, 'therefore'-riddled rule that basically says: "If I borrow five bucks and you tell me I have to pay back seven, you can't come back to me on the day I need the money and say 'make it ten'." Fair enough. The problem, as I see it however, is that bankers still have an awful lot of unchecked power to make the process miserable - even if they're honest while they're doing it.

Take, for instance, the current stance on downpayments. In order to buy a 2-4 unit building, even if you are going to owner-occupy the property, the bank automatically suspects a fraud case waiting to happen. So banks are requiring buyers to have 25% down before they'll even consider giving out a loan on a small multi-unit building. (More money equals less chance of deceit? Have these guys been watching the news?)

If the average 2-flat in our market is going for $250,000 (and, my fellow two-flat owners, I feel your pain) that means $62,500. Are you kidding me? In this economy?

Next order of business is checking credit. It better be tip-top. No hint of trouble coping with the worldwide stranglehold reality has on our economy better appear on that credit report. Nations may crumble, industries tumble, but your buyer better have a 620 minimum.

Then the lender, with downpayment money laid out like rose petals before him and a client credit score so tight he could bounce a penny off of it, goes to work finding the right loan 'product'. When he does, he sets about getting an appraisal. This process has become the inside joke in real estate. Even appraisers themselves know it is a joke.

Think of it this way: You go to your friend to borrow twenty bucks to buy a pair of shoes. Your friend responds with something along the lines of "I'll loan you the twenty bucks, but first, I need to see what the shoes are worth in case you don't pay me. My buddy Vito is going to check out your shoes, and then look at how shoes have been selling over the past six months. If the numbers jive, we're good." That was fine in those heady days of yore when footwear was practically laced with 18k gold.

But now? There are no comparable sales numbers to analyze and offering the bank a property to keep as an asset is like offering that friend of yours a pair of sole-less, strap-less, moth-eaten, more-hole-than-leather shoes. At a barefoot convention. And Vito? He doesn't have feet. Never worn shoes in his life.

If we get past that, it's off to the closing. We're practically there and all signs are that we are T minus three days. But, then. Wait. What's this?

At the beginning of the process, the Truth in Lending (TIL) law required the lender to give you a Good Faith Estimate (GFE) of all the numbers involved in your transaction - fees, charges, expenses of involved parties, credits, debits, etc. That's to protect you. The consumer. But now, as it turns out, some of those estimates were off and the numbers have changed.

Enter our friend MDIA. A new GFE has to be prepared and the MDIA ammendment to the TIL requires you to get WTF'd into postponing your closing for another seven days while you wait for yourself to be protected from the truth about the numbers you're spending.

But the real truth is this: the banks still have more power than they should.

In my opinion, the MDIA, while a valuable and worthwhile enactment, is futile not because it doesn't address the issues it regulates, but because the greater truth remains untouched. The consumer remains vulnerable. Banks control the loan products they wish to offer, the down payments they're willing to accept, the rates they're willing to offer, and the time they're willing to take to process loans.

The consumer is the skinny little kid with wispy hair and thick glasses holding a contract in one hand and his courage in the other, facing a bigger kid wearing a 'green is for money' tshirt and greed-drool as an accessory. Our little guy's only protection is his friend from the math club - a smart kid with some knowledge of the system and a line on the big kid's weakness. Our prince valiant needs his buddy to look out for him, support him, encourage him, stand between him and the big green monster and keep the whole thing civil. But where to find this kid? The honest one with the good face and the knee-high socks? Funny you should ask.

You can't see my socks - but they're there - and I'm here to help whenever you need it. Call and learn more about how the services of a professional real estate agent can give you the confidence and security you need to brave the market and make your dreams a reality. 773-457-2495

Short on Smart

Somebody's got to tell the bankers that this business of rampant incompetence in the short sale process is reprehensible. And then somebody's got to make them fix it. Here's how it currently works, and when I say works, I mean it doesn't work: A seller with a property at risk for foreclosure lists the property with an agent at a price that seems reasonable for the product and the market. The agent, we hope, knows the product and the market so this is a responsible and well-thought-out listing. The agent pursues a marketing strategy geared to the product and the neighborhood to draw in the target buyer. A buyer, however cautiously, eventually makes an offer - usually a lowball because 'getting a deal' is the name of the game right now. The agent works with his/her seller to determine whether or not this will be a viable offer from the lender's perspective. This process is conducted in pitch-dark, because banks won't provide concrete guidelines for what they will and won't find acceptable, values are constantly in flux, and most of these at-risk sellers also have 2nd tier loans on their properties that complicate the whole mess... but I digress. The seller finally accepts an offer he/she thinks will work, and sends the offer, along with a sordid financial history and documents to prove hardship, to the bank.The bank then sucks that packet of documents into the vacuum they like to call 'loss mitigation', where it sits collecting dust and the frustration of all interested parties. In the meantime, the average short sale seller doesn't get more capable of paying his/her debts, but less. Often during this time, the bank, unbeknownst to itself, initiates foreclosure. The seller panics. The agent makes a call. At which point, the bank - like a dad taking credit for remembering his wife's birthday when it was really the kids - has a moment of clarity. The short sale might prevent the need for foreclosure. With this mantra temporarily installed the bank sets out on a course of institutional schizophrenia which would be funny if it weren't near-criminal in stupidity: it pauses its own foreclosure in favor of allowing itself time to further delay the short sale. By the time the bank assigns the short sale file to a caseworker, who will likely admit he/she received little or no training except being burned by the long-line of on-fire files he/she has to work on, the buyer has grown weary. We're usually four months into it at this point.The caseworker does little or no work to establish the validity of the short sale claim - hardship is pretty easy to prove these days - so he/she goes straight to the ordering of a BPO (Broker Price Opinion). Remember way back when - at the beginning of this process - when an experienced agent reviewed the market statistics with some actual knowledge of the area and the product and came to a conclusion on a reasonable list price? Well, now this BPO is going to drive by the house - which is usually some 40 minutes away from his/her area of expertise - and completely eradicate the validity of the listing process by telling the bank that they could get way more for the property. The bank believes this drivel and counters the buyer with some absurd number. Everyone's supposed to be grateful that they're still willing to 'play ball'. The seller's agent wrings hands together with the seller and, in a later call, with the buyer's agent until finally, the buyer is approached with the new number.If you're working one of those miracle sales, the buyer still wants it and is willing to up his number.The bank is notified and sends the package with the alacrity of a dead-tulip race to the holder of the 2nd mortgage. If it's with the same bank, the speed dials down a notch or two. The 2nd mortgage lender receives and assigns the file, using the same dust-collecting method of the first lender. Like minds and all that jazz. As luck would have it, the 2nd mortgage company is willing to approve the short sale! But wait - the approval is conditioned on receipt of a promissory note from the current owner, indicating that - sight unseen - he/she will promise to pay an amount three times greater than his/her current income (which is often zero at this point). Not to belabor a pretty obvious element in our story but - the seller is broke! The banks know this - they're the ones that broke him! So making him promise to pay is like making your dog promise not to pee. Meet "Stupid". Your seller, worn and withered at this point, agrees. What's another promise he can't keep? The bank accepts with smug satisfaction and orders that everyone now remember the 'time is of the essence' clause in the contract, requiring everyone to complete all the remaining work in less than three weeks. Meet "Irony".All parties lurch into action; the buyer spends on an inspection, has his attorney review the contract, the buyer's lender sends out an appraiser and then.... screech... STOP right there mister! The buyer's lender finds that the property isn't worth as much as the buyer is willing to pay. For those of you still hanging on for the anti-climatic conclusion, this is the part where Stupidity and Irony meet, fall in love and have a baby.Further hand-wringing ensues, with some bad language and a few glasses of wine thrown in. Through a bible-worthy act of God, let's say the buyer is willing to make up the difference in cash and wants to keep at it. The seller's lender is notified and away we go. Naaaht. Because at this point in the primer on 'How Incompetent Can We Get?' the bank re-assigns the person who's been working your file and the documents get transferred to a new person. This person's got about the same level of short sale processing experience as a Malaysian goat, but proffers the attitude of that babe who ran the magazine in "The Devil Wears Prada". Ultimately, the outcome of this scenario is irrelevant. The seller is already ruined, the buyer is already disgusted, and the agents on both sides have spent more money on cell phone minutes than they'll make in the transaction. This is the bank's contribution to recovery. Really?This is not how we're going to resolve this problem. Banks need to apply the same level of zeal to short-sale processing that they did to looping all these hapless, unqualified buyers into buying these homes in the first place. The faster and more efficiently these properties change hands from the overwrought to the eager the sooner we can all return to a stable and healthy market. Don't kid yourself - that market is a long way off - no doubt. But the rampant incompetence in the short sale process is equivalent to poking a hole in your gas tank right before you take off on a long and arduous road trip. Smell that?Somebody does need to take notice of this and somebody does need to fix it. We do. We, as real estate professionals, must demand a more competent and effective partner in our recovery. We as community members, must cooperate with one another in controlling and managing the property inventory. And we, as citizens, must require our elected officials to do the jobs they were hired to do: regulate, oversee, make accountable. Otherwise we, as Americans, will all suffer the consequences.

Today's the Big Day!

Effective July 30, 2009, there are new rules regarding Truth in Lending (TIL) disclosures. These rules, which affect all lenders, are contained in the Mortgage Disclosure Improvement Act (MDIA). The MDIA is intended to protect consumers and make it easier for them to understand TIL disclosures. You can look at the rules by visiting the federal reserve printing at http://www.federalreserve.gov/reportforms/formsreview/RegZ_20090519_ffr.pdf

The primary purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 etseq., is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. This is the so called 'fine print rule', which attempts to explain all the microscopic caveats on the forms so you know, in plain numbers, what it all means. (From my perspective, this is like taking birthing clasess. You know, but you really don't know!)

The MDIA is likely to cause some delicious delays in the process now, as everyone becomes accustomed to new timetables, new steps leading to the closing table, etc. Until MDIA has been in effect for some period of time, its real impact on lending practices will be muddled by the frustration these new processes and inherent delays will create. However, the good thing to take away from this is that we are scrubbing clean the mess that was made during the heady days of the real estate boon. Once done, and with some necessary fits and starts, the achievement of homeownership will mean something again, the professionals who work in all aspects of our industry will deserve some respect again, and the 'truth' will be rightfully returned to its place in the process.

And that is some good news.

The News Is Good (Sort Of)

U.S. New-Home Sales Climb 11%, Most in Eight Years
By Courtney Schlisserman - July 27 (Bloomberg)

Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.

That was the news being sent around yesterday. Whoopee! Good news! Rarer than diamonds in this business nowadays, good news is greeted with relief and some air of triumph. "This is it," the guilty-smug smiles tell you. "We rode it out!" We try not to congratulate ourselves, but we're so desperate we can't help ourselves.

We used to congratulate ourselves for much loftier accomplishments - market share, million-dollar sales awards, multi-million dollar development listings. Aaaah the good 'ol days. No more. Today's mantra is "If I ride it out, at the end of the storm I will be stronger and better than ever!" Translate that as: "If I can hang on without losing my dignity I'll be the only one left when its over!" Clinging to dignity has become perilous in this market, no doubt, but I consider it my version of "Survivor".

Of course, that strategy is completely counterintuitive to all the training you've gotten, which has told you that each challenge is an opportunity for success. But when chasing down the status of a short sale turns into a real-time exercise in "Who's on first?" the training-manual ideas seem ridiculous. Today, the formulas for success that get stamped on binders and re-printed in handouts are dated, irrelevant and comical, from my point of view. I can't chase around my homeowners for referrals when a good chunk of them are on the brink of losing their own homes. I can't throw parties with branded merchandise when I'm trying to figure out how to pay for my kids' birthday party with dollar-store cups and plates. My sphere of influence is panicking, just like everyone else.

So, of course, when the good news comes along, I'm eager to share it, take some completely undeserved credit for it, and convince myself I can treat my family out to dinner because of it. But, as with all things, good news is not all it seems on the surface. And this is the sentence in the above-referenced article that woke me from my sugar-induced euphoria.

"The number of houses on the market dropped to the lowest level in more than a decade."

You've seen it yourself. There are less signs on the street in many Chicago neighborhoods. Looks less frantic. Good, yes? Maybe. But what, really, does it mean?

Yes, we've done a good job clearing out alot of the bottom-dwellers in the market, but there's plenty more where that came from. Yes, we've made significant headway in removing at-risk homesellers from the inventory through the influx of short-sales, but who isn't short these days? And yes, some homesellers have decided to pull back and wait for a better selling season. My kingdom to know when that'll be.

When you're looking at numbers, stand in the center and look around. Then stand in every corner of the room and look inward. Make sure you understand what's good and bad in the statistics. No question that increased sales and diminished inventory will be indicators of improvement. The fact that we're looking at those now instead of consistent downward slides is, indeed, good news. But because we didn't sink in one tragic misstep, we won't be redeemed in one cathartic leap forward. Instead, we'll struggle forward in fits and starts, with some good days and some bad days. The challenge is to continue forward. We do.

As for the hope promised in the article from Bloomberg? I think suggesting an overall start toward stability may be a Jordan-esque reach toward that evasive moment in the cycle when we can really claim triumph, pat each other on the back, and pay un-borrwed cash for that meal out with the family. I'm going out to dinner anyway. We got some really good news yesterday.

I can't stand it any longer

I was recently made privy to a story about a well-known agent in our town who’d been interviewed for a magazine article on real estate. She felt her remarks had been misconstrued and took the real story directly to the people through her blog. I read it. It was very triumphant. Cape flapping in the wind, you’d imagine. (I should say at the outset - she’s a badass. Awesome. Top of every list you could think of. God bless her. I wish her nothing but luck for continued success. ) But I’ve got to say that her perspective offers a very limited spectrum for shared experience.

The essence of it was that she felt her area should not be described as ‘troubled’ based on her remarks. She then combated the numbers and statistics in the featured article with her own numbers, more current numbers and different points of view about the old numbers.

Seriously? That kind of silliness is what contributed significantly to the terrible trouble we are in. We’re in trouble. So is she. And so are all the people in her area. No one is immune. To suggest otherwise is a lie, no matter how hard you try to sell it. Other than to establish that no one is immune, broad characterizations about either the health or decline of the real estate market provide false premises upon which we can no longer stand. And on that one point, we should all agree. The truth is necessary.

The honest truth is the residential real estate market is suffering, loudly and with flapping ARMs. Some things are getting better, some things may get worse before they improve. There's a mixed bag. Any professional worth his or her salt in this business must tell the truth about the whole thing, good and bad, in order to further the remedy.

Until then, I can’t stand by any longer and allow myself to be affiliated with the puff and circus-pants (as my daughter once characterized ‘pomp and circumstance’) about the state of our business. I encourage you to join me. Provide your stories, good ones and not so goods. Laugh at me, fume at me, I welcome it all. Let’s get it all out there and tell the truth. I’ve heard that kind of thing can be very freeing.