“First time home buyer credit
First Time Buyer Housing Tax Credit Loophole?
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Category Archives: Seattle Real Estate Stats
Bottom Calling to Solicit Clients: Is it Ethical?
A question was asked by seattlerenter in this post at SeattleBubble about an advertising letter mailed out by a real estate agent. See comment 19:
Dear Renter,
Youve been patient. Youve waited for the perfect time to buy a home. Well this is it. Home prices have bottomed out. Many experts see prices rebounding from current lows. The $8000 Federal Tax Credit is available for a limited time. The….. Buyers Rebate is yours when you use me as your Buyers Agent. And now Mortgages are at their lowest since 1971…Your patience has paid off!”
Seattlerenter asks if this is legal and ethical, specifically, using the phrase “home prices have bottomed out.” Since I do not practice law, I cannot answer the legal side. In this blog post, I will analyze the ethical question.
First we need to differentiate between real estate agents and Realtors. Everyone is an agent but only some are members of the National Assoc of Realtors. In order to solve any ethical dilemma, it’s important to first consult the minimum moral standard; the law. First we would consult the state agency law. Next we would look to other state laws that may answer the question such as consumer protection laws. After that, there may be a federal law that addresses the question. If we still have no answer, we would consult MLS rules. After that, we would check with our own company for policies and procedures and company ethical codes that address honesty and advertising. Perhaps we belong to a professional association. Then we would consult the ethics code of that association for guidance.
Real estate agents who belong to the Realtor association consult their Code. Here is the link to the NAR Code of Ethics.
As we see in Article 1, a duty of honesty is paramount when working with a client. But at this point, we are soliciting to obtain a client. We don’t have a client yet. Standard of Practice 1-3 says, “REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.” In order for the marketing piece to be deceptive, the real estate agent must have known about the falling market in advance and intentionally choose to mislead potential home buyers and sellers. Since we can’t know the future, this article may not fit our situation. Article 2 says “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property.” If Realtors have facts that lead them to believe that now is NOT the bottom, then they might be in trouble here. For home sellers, that’s not going to be a problem (since selling NOW in a down market is better than waiting.) This would only be problematic for a buyer who was lead to believe through exaggeration, that we are at the bottom.
Here is what I’ve been waiting for. Article 12:
“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”
How would a Realtor put up a defense against an Article 12 ethics violation for sending out the above letter? Well, I suppose what he/she might do is to provide some sort of analytical proof with numbers, statistics, and graphs as to how he/she arrived at an affirmative realization that “now” is the bottom of the market. This Realtor may be able to defend against an ethics complaint by saying that he/she WAS being honest, based on the facts known at the time, and based on his/her analysis.
This leaves homebuyers to make their own decision as to if this particular Realtor’s personal opnion and analysis of the market can be verified by other third parties.
A prudent decision for a Realtor (who is going to embark on a bottom calling ad campaign) to do is to take his/her personal bottom calling statistics and analysis and have it reviewed by a neutral third party for accuracy. Similar to how we had our thesis papers reviewed by professors and then winced when they tore up our paper with obvious errors and made us do more research. We were better students because of those professors, even though we didn’t like doing the extra work, but I digress. Without neutral third party review, a bottom-call is just one person’s opinion.
If ever hauled in for a professional standards committee hearing, there would be ample documentation from a wide variety of local, state, regional, national, and international economists , Nobel Prize Winners, and other real estate industry experts who could provide solid opinions based on known facts as to if we were at the bottom on the day that marketing piece was mailed.
The third to the last step in any professional ethical dilemma is to consult one’s own set of values. What kind of a real estate agent/Realtor do I want to be? What behavior do I value in this world? For example, if I value honesty then I need to also be honest with other people, too. Careful reflection is important when considering all the possible consequences. Realtors value honesty, justice, beneficence and non-maleficence, responsibility, respect for persons, loyalty, and compassion. These values are hidden all throughout the Realtor Code. How does our marketing campaign support the values that we believe in?
The second to the last step is to make the decision.
The last step is to look back and reflect on what we did, how it turned out, and if we’d do anything different next time.
The person making the “bottom call” in the letter claims to have experts who agree with him/her. Who are these experts and where can the letter reader go to get more information? Perhaps the real estate agent who wrote the letter could provide that information in the letter.
At best, the letter brings to mind the viagra, porn, and loan mod spam in my spam bin, and I haven’t even touched the typos and the deception regarding the $8,000 tax credit.
If Realtors care about their ethics as much as they claim to, then Realtors should talk with each other about the possible consequences of calling bottom in marketing material and provide guidelines as to what research to use. It goes without saying that we would have benefitted from guidelines like this when we rode the real estate bubble on the way up.
Using the NAR’s economist as the only source would be a very, very bad decision.
Pointless Pricing Tricks
A few weeks ago, a home buyer shared some pricing scenarios a fellow mortgage originator was offering to them.
Scenario 1 looks like the mortgage originator wants the borrower to believe they’re only making a half point in loan fees and the borrower is paying an additional 0.625% to buy down the rate further. How the borrower should look at this is that if they select Scenario 1, they are paying 1.125% to have 4.50% for a rate. (This was provided to me in mid-March and does not reflect current pricing).
On most current Good Faith Estimates have the following lines designated for “points”
- Line 801 = Loan Origination
- Line 802 = Loan Discount
- Line 808 = Loan Origination if you’re a Mortgage Broker
In all my years (9 as of April Fools) of mortgage originating, I’ve never seen an estimate with 0.5% origination and 0.625% discount points. It just seems silly to me. This really illustrates why a consumer should just add up the points paid regardless of if they are entered as discount or origination–if you’ve paid either, you’re paying points. In fact, as I’m sure I’ve mentioned before (but it’s worth repeating) you should add up all closing costs disclosed in Section 800 of your Good Faith Estimate to see what you are paying for interest rate. Some lenders may have additional fees, such as processing, underwriting, funding…etc. Unfortunately, APR is not a fool proof way to compare interest rates.
While I’m dishing out advice, selecting a Mortgage Professional by interest rates–when we are currently receiving a new rate sheet ever 5 hours is crazy. Odds are, you’re not comparing apples to apples and rate quotes don’t mean anything unless you’re locking in at that moment.
In this current market, make sure:
- Your loan is locked for enough time to accomodate your closing. A 30 day quote on a 35 day closing isn’t going to cut it.
- Will your Mortgage Originator honor the closing costs shown in Section 800 of the Good Faith Estimate?
- Will your lender be able to provide loan documents to the escrow company earlier enough to accomodate the escrow company so they can provide you with an estimate HUD to review prior to signing? (You need to request this, if you want to have your estimated HUD-1 Settlement prior to your signing appointment–it’s generally not requested by borrowers).
Where is that elusive “bottom”?
Dow breaks 8,000 April 2, 2009
Whether you are talking about the stock market or the housing market or the economy in general, it is very interesting to watch the discussions of “bottom” and “a recovery”. Today the Dow is peeking into the 8s, with headlines of “Dow Crosses 8,000 in Broad Rally”. I was surprised by this sentence in that article:
“We have more and more evidence that the economy is heading for some stabilization, and we see some leading indicators that show that the bottom could be near,” …
I admit I am confused by that statement. If the market does stabilize from here out, wouldn’t that make “the bottom” behind us vs “near”? If we never get there again, wouldn’t March 9th when the Dow closed at 6,547 be “bottom” vs some date in the near future? Does “bottom could be near” mean we will shortly be under 6,547? I’m pretty sure that is not what they mean. I think they mean bottom isn’t bottom, until “they” choose to declare it as bottom at some point in the near future.
I expect some will see stabilizing as “a recovery” while others won’t view the market as “in recovery” until it is up past it’s historic high point. I clearly don’t expect home prices in the Seattle Area to be significantly higher in May of 2010, than they are in May of 2009. I expect to be “at bottom” for at least 3 years.
So what does “at bottom” mean to you? What does “a recovery” look like to you? I find it very interesting to study the various differences in people’s perspectives on these two concepts.
Robert Shiller Coming to SPU
Yale Economist Robert Shiller of the Case Shiller Home Price Index will be speaking at Seattle Pacific University on Monday, April 27, 2009 at 1:00 PM. Details are on the SPU website; hat tip Tim Ellis. I missed Paul Krugman when he came to the UW a few months ago and I’ll miss this one, too. But Tim said he’d take notes for us and post them on Seattle Bubble. Thanks Tim. BTW, the latest Case Shiller reports are out and the analysis on the Seattle market can be found here which shows the Seattle area off 20% from our peak.
Sunday Night Stats – Snapshot of “bottom”
Revisiting my “bottom call” of February 7th. At the time, even those who potentially agreed with me, wanted more “proofs”.
But in the instant that I “called it”, it was more like watching the horse at Steel Pier diving into the ocean. You knew the horse was going to land UNDER the surface of the water, even while you were watching it in mid-air. Basically, the market was taking a high dive off of the beginnings of “spring bounce”. It was like standing on a train platform and watching a bunch of people jump in front of the train.
For those who don’t like to believe that the Housing Market Stimulus Package is going to improve the market, you may take some consolation in the fact that the same stimulus package contributed to “the bottom” call. The mere hope of thousands of dollars coming, created the instantaneous and abupt change in the marketplace that caused “the bottom” to happen. So you can both credit the Obama Administration for the “recovery” and also blame them for “the bottom”. That should satisfy just about everyone.
Here’s the final snapshot of what I believe is “bottom” and the forces that created it.
The green line is the percentage variance between asking and sold prices.
The shift down from 3.1% to 1% signalled the typical beginning of “spring bounce” in January of 2009. At the time of my bottom call, this percentage shifted from a low point of 1% to a high point of 5.5% almost overnight. You can see the historical data from just before peak to present, with some commentary in this post. The only other time the % variance of asking to sold prices exceeded this 5.5% mark was in February of 2008, BUT that was at a time of high asking prices
This brings us to the blue line. What you are seeing in December, which is often the lowest point for prices in an given year, is a median asking price of $451,000 (for this market segment) being pulled by a 4.2% variance down to a sold price of $432,000 and an adjusted median price per square foot down from $256 to $222. Then you see the normal seasonal ascent as asking prices increase (blue line) and the % variance decreases (green line).
Note the yellow dots. Even though asking prices stayed level from 1/1 to 2/1, the prices (yellow dot) increased because the % variance from asking price to sold price decreased (green line). Watching asking prices rising and dropping does not give you the same perspective of watching that in conjuction with:
Median changes in Days on Market of homes sold
One of the most startling indicators that “bottom” was “in the room” was the insane shift in % variance of homes sold in less than 30 days.
As you can see in the above link, the % sold in 30 days or less just prior to peak was 70%. So it would seem to follow that the extreme low of 13% at the time I called “the bottom” would be “just prior to” bottom. While we don’t yet have all of the sold data for the month of March, the shift upward from 13% to 23% and March to date at 33% is a big sign sign that February 7th or so was and is likely “the bottom”. I find it very hard to believe that number will ever get lower than the 13% it was when I made that “bottom call”.
In writing posts in preparation for this “snapshot of bottom” post, I did visit the volume of sales statistics. But to a large extent I have stopped relying on this data and consider it very old news. The drop from peak as shown in the graph in that link from 181 in June of 2007 to 86 in the short period to September of 2007 was a huge signal that prices would follow. But today I rely less on volume statistics as a sign of anything, because with squeezed equity positions you find more and more sales happening outside of the mls system. YOY volume is not only “old news” it is also mostly only relevant to agents vs. buyers and sellers of homes these days. Still I provide it for those who like all of the data.
Last but not least, let’s visit the plunge of sold prices in the chart below.
The chart above is where you get the fine tuned visual of watching prices take a nose dive off of Spring Bounce. Perhaps if you didn’t “get” my reference to the Diving Horse in the opening of this post, you can feel it now as you examine the variance in this graph from December of 2008 to March of 2009. You can almost see the horse slowly climbing up the ramp (from $432,000 to $469,000), and then you gasp out loud as the platform falls out from under the horse as he plummets head on into the ocean ($405,000). My post of February 7th was me “gasping out loud”.
How I chose the market sampling bears some explanation. In my bottom call as detailed by Aubrey Cohen in his article in the PI:
“DellaLoggia said… buyers are consistently calling the bottom at 20 percent under peak pricing” (not including houses that are not in foreclosure or being sold as part of an agreement to avoid foreclosure)…she’s focusing on the North Seattle and East Side areas where she works. She said distressed sales were going for about 37 percent below peak, and areas with a large share of distressed sales would see those dragging down prices across the board.”
So to determine price specific to a subject property, one you choose to buy or one you need to sell, you need to calculate what peak price would have been for that property. Then you need to calculate the % of distressed sales affecting value.
Since the drop in premium pricing for view property is dramatic in a down market (just as it is accelerated in a hot market), I excluded lake and mountain view property from this sampling. Since very large homes (mostly new or newer) are experiencing a different market influence which is not “at bottom”, I also capped the square footage in this sample to not more than 3,000 square feet.
Making those two initial adjustments, I used the zip codes of 98004, 98005, 98007, 98008, 98033, 98034 and 98052. This gives us both Downtown Bellevue and Finn Hill. It gives us close to Microsoft and North Juanita. It gives us an approximate mix of 10% distressed property to 90% not distressed property and it gives us a combined drop from peak to bottom of approximately 30%.
That 30% is a combination of the 20% and 37% quoted in Aubrey’s article, an extreme reaction by sellers to jump in front of the train with deeply discounted asking prices and the buyers going after that deeply discounted group with a sickle chopping 5.5% off those lowered asking prices.
I did a final adjustment in the red line of this post to equalize the slight variance in median square footage of the homes in the monthly samplings, to be sure the results weren’t skewed by minor sold home size differences from month to month. This is noted as AMPPSF – Adjusted Median Price Per Square Foot.
One thing I know for sure. It was a whole lot easier to write this original post, than it is to explain it. 🙂
Related posts:
RCG – The Bottom Call, RCG Sunday Night Stats – At Bottom , “Agent Predicts Housing Slump’s Demise” – Aubrey Cohen, Seattle PI, My thoughts on Aubrey’s article, Snapshot of Front Page “above the fold”
Don’t Forget 8:30 – 9:30 today – Earth Hour
From the Seattle Times article:
Lights illuminating the Space Needle, downtown high-rises and neighborhood homes could largely go dark from 8:30 to 9:30 p.m. on Saturday, March 28, as part of Earth Hour, an international campaign against global warming. Cities around the globe are expected to take part, and landmarks such as the Empire State Building and the Golden Gate Bridge will go dark.
Naughty Mortgage Fraud Mom Gets Life Sentence Instead of a Time Out
From North Texas:
A Henderson County woman was today sentenced to 99 years in prison for her role in a mortgage fraud scheme. On Tuesday, a Navarro County jury found the defendant, Kandace Yancy Marriott, 52, of Gun Barrel City, guilty of engaging in organized criminal activity. According to prosecutors, evidence presented at the punishment stage showed Marriott received monthly mortgage payments from her clients, failed to remit those payments to the mortgage lender, embezzled the homeowners’ funds, and therefore caused her clients to default on their home loans. Marriott’s conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme’s principal operators were the defendant and her husband, Darrell L. Marriott, 54, who sold manufactured homes through their company, One Way Home & Land. However, the defendants’ daughter, Kally Marriott, and Kandace Marriott’s sister, Karen Hayes, have also been indicted for their role in the scheme. All four defendants face separate charges for related criminal conduct in Kaufman County.
According to state investigators, the defendants illegally forged home buyers’ signatures, inaccurately completed loan applications, and falsified supporting documents, including the buyers’ rent payment verification statements, proof of employment, and Social Security Administration benefits data, among other items. Court documents filed by the state indicate that the defendants conduct was intended to ensure that unqualified home buyers loans were approved by mortgage lenders. The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. As a result, when the unqualified buyers defaulted on their home loans, their mortgage lenders did not suffer financial losses. Instead, HUD – and therefore the taxpayers – had to cover the default costs. Investigators believe the defendants’ scheme cost the taxpayers more than $3 million.
Is 99 years too tough? Some argue about the unfairness of the folks from Enron receiving a lighter sentence for stealing billions while this mom gets 99 years for stealing 3 million. Well, some of those Enron defendants decided to become a witness against others in order to receive a lighter sentence. But we can’t quite compare Mortgage Fraud Mom with Andrew Fastow because I believe a person cannot testify against a relative. Perhaps the horrifying lesson is to always commit fraud with a non-relative.
There will be no public sympathy for what this family has done as long as the economy resembles a slow moving train wreck. It may take years for some humans to ever begin to trust mortgage lenders (banker, broker, or consumer loan company) again.
This is just one case of a mortgage fraud family. How many more are out there that we haven’t even begun to prosecute or may never find?
On the bright side, perhaps she will still be able to see her sister and daughter when they join her in the same prison.
Even better, maybe 99 year sentences would have the effect of actually deterring mortgage fraud. The existing set of consequences were clearly not enough.
Will First Time Buyers Bring It Home For Seattle……
The final amount of the $8000 tax credit was pretty disappointing after all of the anticipation for $15,0000, but surprisingly it seems to be generating interest among first time home buyers around the Seattle area. There were about thirty people through my Green Lake open house this last weekend, and while this area is known for its great traffic at open houses, the visitor count was still about twice of what was expected.Nine out of ten were first time home buyers and they were all asking about the tax credit for 2009.
In fact, most of the activity around Seattle last week was in the $500,000 and under price range.
A quick look at Seattle sales for the last week in the NWMLS (residential only) shows 50 closed sales in the city of Seattle. All but 13 of these were under $500,000. A look to lower priced suburbs just North of Seattle shows that all 20 of the closed residential sales in the last week for Lynnwood, Mountlake Terrace, and Shoreline combined were under $500,000 with a large majority hovering around the $300,000 mark. A look to the Eastside in Bellevue, Redmond, and Kirkland for the same period shows 27 closed residential sales with 18 of those in the $500,000 and under range.
Clearly, the $500,000 and under market is dominating the sales figures this last week, and if my last few open houses are any indication, first time home buyers are playing a major part or could be soon.
Is this really so different than last year with no $8000 tax credit?
Looking at a year ago for the same period there were three times as many sales in the city of Seattle: 150 closed sales in Seattle with 97 of them being under the $500,000 umbrella (44 of those sales were built in 2007 or after… a.k.a. new construction). In Lynnwood, Mountlake Terrace, and Shoreline combined there were a total of 24 closed sales and only 4 were over that amount. The real change is on the Eastside where out of 45 closed sales only 13 of them were driven by that lower market. The other 32 closings were over $500,000.
Except for the larger quantity of sales in Seattle and the Eastside and the flip flop of ratio of lower priced closed homes to higher priced closed homes for the Eastside, the data is strikingly similar as far as what price range dominates.
So will the $8000 tax credit stimulate first time home buyers in Seattle and drive our economy?
(Full Disclosure: The numbers gathered here were compiled by Courtney Cooper from data on residential sales only – including townhomes but not condos in the NWMLS)
Remember When There Was No Bubble?
It’s been 4 years – let’s reminisce for a moment, shall we?
I remember. I also remember incurring the wrath of the bubble blogger set with a slightly too subtle dig at the no bubble stance. For the record I said that saying there is no bubble was a “crazy statement.”
But my predictions (which I’m having trouble finding) were imperfect. I predicted a 10-25% decline in home values at the worst and thought the likely bursting of the bubble (which I fully acknowledged!) would actually be a persistent leak – that we would have flat prices for 10-15 years while inflation ate away values.
I thought the government would be so averse to home prices dropping that they would do everything to keep them stable – even at the expense of the economy. Apparently I underestimated the size of the problem. Or I overestimated the powers of the government. By a lot.
And we aren’t out of it yet. This crazy prediction is already true for parts of California (from this post):
>How much do you expect the $400,000 to $500,000 market to drop?
If we have a “soft landing