patrick.net

I'd like to ask what exactly the buyer's agents do. Do they really deserve the 3% commision?
If a buyer has already found a house he wants to buy, what does he need an agent for? What else is there left for the agent to do other than being the middleman shuffling the paperwork? Please advise.

I'd like to ask RE agents their plans for bunkering down during the next year or two. Regardless of a soft or a hard landing, I think a very slow moving market and desperate/unrealistic sellers will be the norm. How would you professionals deal with that situation?

My question is about the viability of buying bottomed/foreclosed single-family homes as rental properties.

Specifically, buying McMansion or other overbuilt, probably new/newer, units in development neighborhoods that are in above-average to very-good school districts. And then converting them into semi-permanent rentals and marketing to middle-income families looking for better school districts for their kids.

I have a feeling there's a reason this strategy might not work.

Lexington Says:

> I’d like to ask what exactly the buyer’s agents do.

Typically they spend time hunting for a home while busy professionals are at work.

> Do they really deserve the 3% commission?

Yes, if they find you a nice home that you like and close the sale…

> If a buyer has already found a house he wants to buy,
> what does he need an agent for? What else is there left
> for the agent to do other than being the middleman
> shuffling the paperwork? Please advise.

As I have mentioned before if anyone finds a home they want they should work with the “listing” agent to close the deal NOT a “buyer’s” agent. I have been licensed to sell Real Estate in California for over 20 years and I have seen EVERY listing agent do what they can to represent the seller AND the buyer (and make twice as much money). In most cases the listing agents will work as hard as possible to stop a buyer’s agent from doing a deal for as long as possible so they can find their own buyer (people will do a lot to make twice as much money). Remember if you work with a listing agent they can get the seller to drop the price by 25% and still make more than they make if they are just the listing agent working with a buyer’s agent… The most successful residential real estate agents have the ability to convince sellers that their home is a pile of crap and sure to soon drop in value while simultaneously convincing the buyers that they are getting a great deal on the best home in the city that will soon double in value…

Randy H Says:

> My question is about the viability of buying
> bottomed/foreclosed single-family homes as
> rental properties. Specifically, buying McMansion
> or other overbuilt, probably new/newer, units
> in development neighborhoods that are in
> above-average to very-good school districts.
> I have a feeling there’s a reason this strategy
> might not work.

The problem with buying a single family home or homes to rent is that unless you buy them for all cash or make a huge down payment they will have negative cash flow for years (the negative cash flow can get real ugly when the homes are vacant). If the market bottoms and you buy at a decent price (under 10x the annual rent) you can get the property to break even if you start working part time job as a property manager/handyman/painter/gardener and (like my Dad did) put your kids to work cleaning, painting and fixing stuff…

George,

How are the winters in your neck of the woods? It seems to me that if rent is very cheap and plentiful in your market, there would be lots of snow birds willing to do 6 months rentals.

Thanks to George and FAB for your thoughtful perspective.

Another question arises regarding successfully managing rentals. Even if I assume I can buy at less than 10X annual rent, and I have the management and maintenance capacity, how much does tenant credit risk factor into the equation? Reading George's comment, I worry that the very target renter for these types of properties will also be some of the higher risk (as a percentage of rent value). Or more simply, it's gotta be tough making a business from renting to former-F#ked Buyers. These aren't exactly the folks you'd want to trust to make good financial choices, not the least of which being paying rent on time.

The Learning Channel should do a show called, Debtors Hell, and how so many people got there with the help of the real estate industry. There would be tens of thousands of human interest story lines to make episodes out of. After all, it is TLC, and they should be educating people on the pitfalls of buying real estate, that puts them in debtors hell for a very long time.

If I were a TV producer, and knew the ins and outs of the business, I would not hesitate to produce a show like this. People love human interest stories. What's wrong with making making a show called Debtors Hell, where the accomplices are real estate and banking people?

I think Jeanette Pavini did a fantastic job preparing this story. Also, I don't feel any sympathy for the couple that signed mortgage paperwork with payments greater than gross income. This is basic arithmatic. I don't care if someone said refi. she knew better and said as much "I can't afford these payments" That was the trigger for her to walk right out the door and not sign a thing!

Debtors Hell House. Comming this fall.

Saw it. Very inspirational!

Or why not a white couple?

New Saturday program lineup;

Debtor's Hell House, followed by, The Flips That Flopped

Here's another question for you realtors.

How do you arrange mortgage banking for your clients? Do you always refer them to the same group of people or do you do referrals based on their needs? Are there other professionals that you call up for your clients?

Randy H Says:

> Thanks to George and FAB for your thoughtful
> perspective. Another question arises regarding
> successfully managing rentals. Even if I assume
> I can buy at less than 10X annual rent, and I have
> the management and maintenance capacity, how
> much does tenant credit risk factor into the equation?

Many people make bad choices when they get married and their life is hell until the relationship ends (and it usually costs a lot of money to end the relationship). As a landlord if you make bad choices in tenants your life will also be hell (and it usually costs a lot of money to get rid of the tenant).

After years in the business you get a gut feel for the right tenants. The perfect tenant is hard to find since you want someone who has a job (so they can pay the rent), but not a great job (so they keep renting for years), you want someone who takes care of the place, but is not anal and complaining all the time.

FAB,

Broadly speaking, which group makes the best tenants?
Men?
Women?
Single people living together?
Married people with kids?
Married people without kids?

HidingintheBronx Says:

> I don’t understand how a buyer’s agent can work
> on commission. Obviously it’s a clear conflict of
> interest (maybe someone can explain why I am
> wrong about that tho’).

Every agent is looking out for their own interest and listing agents don’t give a dam what the home sells for (as long as they sell it and they make a commission). Buyer’s agents don’t care what kind of home the buyers get or what they pay (as long as they buy something an they make a commission).

Most top listing agents “double end” (get both the listing and selling fee) most of their listings so smart buyers agents will stay away from these people (even though they have the most listings on the best properties) and show properties listed by the “part time Sally’s” who are happy to get just half the fee and close the deal…

astrid Says:

> Here’s another question for you realtors.
> How do you arrange mortgage banking
> for your clients?

You send your clients to the lenders that can “make it happen” (aka fund the loan) you don’t care what the terms of the loan are (or if the client loan payment is $4,200 a month when they only make $4,000 a month) you only care that the lender wires the funds to escrow to close the loan (and pay your commission).

astrid Says:

> Broadly speaking, which group makes the best
> tenants? Men? Women? Single people living
> together? Married people with kids? Married
> people without kids?

The main thing you are looking for when you rent is stability…

You want people that are at a stable place in life that will stay in that unit (or home) for a while (hopefully for years and years)…

Who is best depends on the unit, a couple with a baby will probably not stay in the studio for years just like the working class family with older kids will probably not need the 4 br home for a long time…

Now you might think mortgage lenders would be more careful giving out hundreds of thousands of dollars without proof of income. But in fact there’s almost no risk to the bank. That’s because most banks turn right around and sell their loans to real estate investors on Wall Street — to mutual funds, pension funds — even foreign countries.

i have a two part question to anybody: given this information quoted above, it seems the banks don't even care about foreclosures and loans in default any more, as apparently they've already sold the debt to wall st. 1) who is going to prosecute casey, given the banks have no interest in the matter any more (or could the mortgage broker and bank also be prosecuted if casey turned state's evidence) and 2) what kickback do banks get for making and then onselling loans these days -- i don't understand how they can 'sell' a loan to wall st and forego all that juicy interest for year after year they traditionally would have got -- how does the split work? anyone? FAB? anyone?

FAB,

Thanks!

It sounds like divorcees often make for good renters, since they're usually employed and can take years to come back from their divorces.

When I helped my parents look up townhouse rentals, one of the best units we saw was owned by a realtor. He said that he had two other units, one of which has the same tenant for 7 years and the other had the same tenant for 20 years. He actually offered my parents a discount if they rented, but he didn't want to do a 2+ year lease to start (my parents really wanted stability) and the location wasn't ideal. The townhouse was very nicely renovated and he was asking for $200-250/month over comparables with a less nice finish.

Hiding and DS,

Since Randy made a specific request to keep this post on topic, let's move the OT discussions to the other thread.

Again thanks F.A.B. and George. Please feel free to control this thread as you see fit. Also, any other RE folks are welcome to chime in, as are others with questions for our experts. There is no better way to learn than to ask people with real-world experience.

Question for Buyer's Agents:

Do you disclose the builder's commission on new construction to your client? Most buyers are aware of the "commission split" on a resale, but with new construction, some builders are now offering up to 10% to an agent who brings a buyer to the closing table.

If resale houses on the MLS show a commission of 3.5%, the buyer knows how much has been factored into the asking price. Rarely is that knowledge available with new construction.

Thanks

Dennis said, “Some may know. But for the most part I would say the consumer is pretty much left out of the loop.”

Out of the loop because the broker often prepares the loan papers without ever telling the buyer their income has been inflated. And buyers may then unknowingly sign a fraudulent income number on their loan.

Fuckem. Assholes, yeah you didn't know that you couldn't afford a 500K shitbox. Right.

Hiding and DS,
Since Randy made a specific request to keep this post on topic, let’s move the OT discussions to the other thread.

how is mine off topic? part 2 asks about the structure of selling loans to wall st, a big part of how liar loans are apparently passed on "to find out how things work and learn" and how the boom may bust -- as per ha ha's post -- and am very interested to hear what happens here -- is it to do with mortgage-backed securities a la fannie mae?

hiding answered part 1 well about criminal prosecution, altho i spose my angle was more about civil prosecution. both parts eminently answerable by any lurking RE/mortgage experts.

OT: Thanks F.A.B. (Hey a captain scarlet ref.)
i think it was thunderbirds actually. CS was 'S.I.G.'
oh sorry... :(

DS,

See other post for my reply.

One (SAX) was recently bought by Morgan Stanley at a decent premium and that is in addition to paying 20% yield for a year. We can assume that MS would have carefully examined their lending practices during DD.

Indeed - that really boggled my mind. I'm curious to see how that will pan out...

Angela,

That's my point.

For illustration purposes......the buyer, seller, and both agents are sitting at the closing table. The BUYER is the one who brings the money to pay everyone; not the seller. The seller might contol dispersion but doesn't "pay" anyone. The selling price has both the listing agent's and buyer's agents commission factored in the selling price.

When negotiating an agreement with a buyer's agent for representation, full disclosure of all commissions and distribution must take place. It's a buyer's market so the "rules" of a seller's market need not, and should not, apply.

Doug H,

Spoken like a true businessman! Why is this so "hush-hush"? Every time some rookie realtor tells me "the seller pays the commission!" (so why are you chipping your teeth over it) I go into involuntary convulsions.

Mike/a.k.a Sage,

Bully good for you!

Every day I wake up and think to myself; How can I bring VALUE to my clients today? (Vice, how can I do more of the same old same old and still manage to get paid?) It's revolutionary. More people in RE should try it.

Look, here's the deal. When it comes to finances nothing succeeds like success. Bring the bling. Fake it before you make it. Pffft. The "elephant in the room" is DEBT!

Want to manage your risk?

We've got a phone book slap full of insurance agents!

Want to manage your taxes?

There are LEGIONS of CPA's and "licensed tax preparers!

Got "a little will"?

Stockbrokers/financial planners coming out of the woodwork!

Want to manage your debt?

GFL!

This is how we work. Debt/leverage is a VERY private issue for practically every American! We don't talk about it. We would rather talk about a sexual inadequacy then talk about our DEBT! This is how we work. Unless and until we start having frank discussions about our DEBT we will remain in Debtors Hell.

It's the first day of the last quarter. Let's all make an effort to make it better than last quarter!

Different Sean Says:

> Now you might think mortgage lenders would be
> more careful giving out hundreds of thousands of
> dollars without proof of income.

I’ve read dozens of CMBS (the “C” is for Commercial) seller reps and far more commercial loan documents than I would like to count. I’ve also been a speaker at commercial mortgage events, but I’m not really a residential MBS “expert”, (so most of this is second hand). I have been told that the bond buyers of residential MBS are OK without any “proof” of income since they are getting a higher spread on the loans and the first loss guys are getting a way higher spread of a couple “thousand” basis points more then they get on the first loss MBS in safer “conforming” pools (and they have a Borrower equity cushion or 2nd TD that needs to go away before they loose money). I forget the exact number but it is just over or just under half of all corporate bonds rated BBB- or lower default yet they still sell at what I would consider a small premium to the A rated bonds. The first loss guys that buy residential MBS will take over as special servicer in event of a default and get note and deed of trust (or mortgage in some states) so the bonds are (in my opinion) far less risky than most corporate bonds.

> I have a two part question to anybody: given this
> information quoted above, it seems the banks don’t
> even care about foreclosures and loans in default
> any more, as apparently they’ve already sold the
> debt to wall st.

You are correct, once the loan is sold the bank does not care if the Borrower makes another payment (just like you don’t loose any sleep worrying if the guy that bought your used car with a loan from his credit union will make his payment next month).

> Who is going to prosecute Casey, given the banks
> have no interest in the matter any more (or could the
> mortgage broker and bank also be prosecuted if Casey
> turned state’s evidence)

If anyone looses enough money they will sue (don’t forget that Casey and all the other 100% LTV FBs have hard money 2nd TDs that need to be wiped out before the MBS guys loose a penny). The small fry 2nd TD guys will either pay off the MBS loan or agree to short sales (and may sue if they loose enough). When the lawsuits happen it will get pushed down to the Borrower since the bankers and the brokers have all covered their ass with piles of paper “signed under penalty of perjury” by the Borrower. An attorney can prove to a jury that the Borrower lied, but will have a hard time proving that the Mortgage Brokerage firm Dewy, Cheetum, & Howe broke the law when they have notarized documents from the Borrower with lies…

> What kickback do banks get for making and then on selling
> loans these days — I don’t understand how they can ’sell’
> a loan to wall st and forego all that juicy interest for year
> after year they traditionally would have got — how does the
> split work? anyone? FAB? anyone?

Banks don’t get kickbacks, but they make on average 100 basis points selling a loan (more if they hold the first loss piece and/or sell the servicing strips). The entire securitized lending story is a long one, but let’s try another car analogy. Let’s say you bought a new Holden Astra with a A$20K loan from your parents at 5% five years ago. If a mate comes up to you and offers to buy the car for $15K (what you still owe your parents) at monthly payments at 6% it is not a great deal since you will only be making A$150 a year. You will also not have the cash you need to buy a cool Holden Commodore SS, (and risk having your mate cancel the insurance and drive it in to a wall after a few beers at the pub). Since banks today are paying about 5% on CDs and getting just over 6% on home loans it is not even close to what I would call “juicy interest”…

Someone wrote:

> “Do you disclose the builder’s commission on
> new construction to your client? ”

Then Angela Says:

> I’m not an Agent but am an Escrow Officer (only part
> time now). Commissions are never disclosed to a
> buyer, only the seller who pays it. I don’t know of too
> many Agents (Buyer’s or not) that would disclose that
> info unless it was in confidence.

I have seen less than a dozen residential closing statements (but look at commercial closing statements every day) but all of them (including when I sold my home on the Peninsula to become a bitter renter) have had the real estate commission (and loan broker commission, and pest control fee, and notary fee and every other fee tied to the sale of the home)…

I think it was Abe Lincoln that said “anyone that tries to broker the sale of their own home has a fool for a client”. Whenever I list residential or commercial property I adjust the fee so the sell side is higher than the list side. This will cause every broker with a buyer to write an offer on your property (remember brokers don’t care what their clients buy, they just care if they make money).

Mojo,

Thanks for your input; well said, and without the "veneer" we are so used to hearing. I'm going to cut/paste/save your comments so I can read them again and again as a reminder. I've been around the block but it's just as easy for me to get offtrack as anyone else and buy into what I'm being told. After all, RE people do it EVERY DAY and do it well....shovel BS, that is.

Mojo

But who could expect you to know anything about law, scruples, or history?

You’re in Real Estate …

That last section is a bit over the line. I'm no stranger to taking on FAB on various issues, but this thread is about those in the industry sharing their perspective and experience. Indicting everyone in the industry as devoid of scruples is not productive to that end.

Hey can you actually put your head up your ass and end up covered in bullshit?

tinyurl.com/j7jcm

why yes, yes you can.

Wow, who knew that the Mortgage guys did not actually have your best interest in mind, that their sole motivation was a quick commission? Quite frankly I find this revelation shocking, what next Jeebus returns and proclaims Surfer-X the new messiah?

tinyurl.com/j4uus

Shocking, simply shocking. I sit stunned unable to actually believe that the mortgage lenders weren't looking out for their clients. Or were they?

Here's something that I personally don't understand. If many mortgage loans are sold in bundles to Wall St., who actually forecloses on the house?

I ask because if funds or other entities are actually holding concentrated amoungs of bad loans, aren't they going to get pummeled when the foreclosure rate rises? Right now there are a lot of loans out there for primary 80% interest only or ARM, second 20% ARM with very little equity. If prices drop substantially, those loans will be immediately underwater. A lot of people would choose foreclosure because they have almost no equity, so aside from the credit hit it's no skin off their back.

You would think this would be a bubble popping effect, simply because somebody has to get rid of the property at some point, don't they? If you can't sell, then you have to drop the price, right? So maybe one of the RE professionals could walk us through the psychology of a lender who has foreclosed on a lot of properties?

FAB,

It seems to me that many good agents used to (and folks like George still try) get work based on their reputation so the individual transaction didn't matter as much as their overall reputation. Was this ever true for the BA? If so, when do you think the shift to a focus on maximizing profit on individual transaction occur?

PS - I hope this is not too nosey, but would you be willing to describe how your parents built their RE portfolio? (Did they scour RE listings? Did they bid on foreclosures? Did they work with a commercial listing agent?) And how did they finance their deals? (Did they hold in corporations/trusts or in their own names?)

"Foreclosure properties has really changed for lenders in the last few years, with lenders gleefully holding out for top dollar and listing properties with local brokers in an attempt to get F.M.V. "

That certainly is the observable behavior in Northern Colorado. In many cases the lenders are asking prices far above the foreclosure price, meaning they stand to make even more profit on the resale than the loan itself. I guess we have to factor in the loans themselves being very shortlived, though. :|

Now that's the *externally* observable behavior of lenders with REO. Some friends of mine have a theory that there's an invisible elite of real estate pros that are on the lenders' short lists. When a bank wants to cut a great deal and move a property immediately, they give their pals first crack at it. Any confirmation or dismissal from the RE guys on that theory?