Is walking away from a million dollar + home, when you’re $250,000 upside-down immoral or simply a business deal that didn’t work?
This question was put to the group of professionals attending the Real Estate Trends class at last week’s Stewart Title Success Summit, and the ensuing discussion was spirited to say the least. I love to hear what you think!
Here’s the scenario:
A family buys a beautiful new home in 2006 for $1.5M. Remember, at that point in time it was still possible to get financing based on stated income and without putting any money down. But for our purposes here let’s say the homeowner does have some skin in the game - say they put 5% down or $75,000. They move in and live happily paying the monthly mortgage as promised. Now fast forward to today.
We are well into the recession, the mortgage market has gone through some violent and not-so-violent revolution, home prices have gone down, as have interest rates. The $1.5M home is now worth much less, maybe as much as $250,000 less and if the family were in a “have to sell” situation they would be putting their home on in a glutted market with 7 years of competing inventory. They are paying a mortgage based on the $1.5M price and looking at homes down the street or around the corner that are selling at today’s depreciated prices and in a lending market with amazingly low interest rates.
So, Mr. $1.5M homeowner looks at his asset sheet and says, “Wow, I’ve got a liability here. I’m paying on a $1.5M mortgage but the house is only worth $1.25M. I could get a better interest rate, protect my credit, and fix my asset sheet. All I have to do is give this house back to the bank, let them do the short sale, and I’ll go buy that beautiful place around the corner. Oh, and by the way Mr. Banker, would you give me a loan on my new place?
This scenario is actually happening and the number of times it happens is promising to grow in numbers for the next 2-5 years depending on how one looks at the statistics.
I’m guessing that many of us can see our way to why a short sale can be a welcome relief and justifiable to the homeowner who was put into an adjustable rate mortgage on a home in the under $200K range and are now dealing with an 8% or higher interest rate. Or we feel OK with it if the homeowner lost their job, or had a medical crisis that clobbered their savings, or lost their equity in an ugly divorce or, . . .
So, does a higher price point, more generous income stream, and the ability to buy a new home at a better price and interest rate make a difference?
The other side to consider is this. The purchase of a home and the agreement to repay a mortgage is, at its heart, a business deal. At its essence, the agreement looks like this - the home-buyer says: “Bank, if you lend me the money to buy this home, I agree to pay you (fill in the blank) amount for this period of time, at this rate. And if I don’t pay you, you have the right to take control of the property in the way you see fit.”
So again I ask, the question, “Is walking away from a million dollar + home, when you’re $250,000 upside-down immoral or simply a business deal that didn’t work?”
I stand with my Managing Broker, Charles Roberts, who initially posed the question in the session last week – I’m not particularly interested in passing judgment. I’m much more fascinated by the fact that this conversation is even taking place and what it means for our society in the future.
Wednesday, March 24, 2010
Monday, March 8, 2010
Easy Money
My father died 2 weeks ago & his memorial service was this past weekend. When the pomp & circumstance was complete, my siblings and I spent a few hours pouring over photographs & other memorabilia, telling old stories and for the most part laughing about the adventures and mishaps of our youth.
During our dance down memory lane I uncovered a frame that held 5 stock-transaction receipts near the top of the frame, a short poem in the center and the calculations of what could have been at the bottom. The stock receipts showed the sale of 2000 shares of Pizza Hut stock over a period of 1 year - 1975, my sophomore year of high school. Sale of 300 shares, sale of 500 shares, and so on. The last 700 shares were sold on 6/26/75 and settled on 7/3/75.
The poem goes like this:
There once was a young man named Dick
Who sold his Pepsico stock too quick
Making money had been easy
His attitude was breezy
He thought he was really slick
From this sale a lesson was learned
Easy money should never be spurned
Dick bellowed and blew
But from then on he knew
Keep good stock and you'll never be burned
And at the bottom were the split dates:
07/21/75 - 3 for 2 = 3,000 shares
11/07/77 - 1.55 for 1 = 4,650 shares
05/07/86 - 3 for 1 = 13,950 shares
08/10/90 - 3 for 1 = 41,850 shares
Dad figured those original 2000 shares would be worth about $5M today had he held onto them. What did he get in return? New siding on the house, a groovy little sports car and a 10-day family vacation to Los Angels.
My father left me many things, among them; a commitment to honesty, a thousand great memories, 4 fantastic siblings, a small gold pinkie ring with the classic 70's smiley face (the symbol of his life's guiding principle, "Think Happy Thoughts"), a very small amount of money, and this 8.5"x11" frame with a powerful reminder of what's possible when we use our cash to buy assets and then leave the assets to work their magic.
During our dance down memory lane I uncovered a frame that held 5 stock-transaction receipts near the top of the frame, a short poem in the center and the calculations of what could have been at the bottom. The stock receipts showed the sale of 2000 shares of Pizza Hut stock over a period of 1 year - 1975, my sophomore year of high school. Sale of 300 shares, sale of 500 shares, and so on. The last 700 shares were sold on 6/26/75 and settled on 7/3/75.
The poem goes like this:
There once was a young man named Dick
Who sold his Pepsico stock too quick
Making money had been easy
His attitude was breezy
He thought he was really slick
From this sale a lesson was learned
Easy money should never be spurned
Dick bellowed and blew
But from then on he knew
Keep good stock and you'll never be burned
And at the bottom were the split dates:
07/21/75 - 3 for 2 = 3,000 shares
11/07/77 - 1.55 for 1 = 4,650 shares
05/07/86 - 3 for 1 = 13,950 shares
08/10/90 - 3 for 1 = 41,850 shares
Dad figured those original 2000 shares would be worth about $5M today had he held onto them. What did he get in return? New siding on the house, a groovy little sports car and a 10-day family vacation to Los Angels.
My father left me many things, among them; a commitment to honesty, a thousand great memories, 4 fantastic siblings, a small gold pinkie ring with the classic 70's smiley face (the symbol of his life's guiding principle, "Think Happy Thoughts"), a very small amount of money, and this 8.5"x11" frame with a powerful reminder of what's possible when we use our cash to buy assets and then leave the assets to work their magic.
Wednesday, February 24, 2010
CREATING NEW WEALTH - Seek First To Understnad!
Last night I watched a Tony Robbins’ interview with Eben Pagan, Internet marketing wiz kid. I say "kid" because he's only 38 and yet he's generated millions from internet marketing of his products. His products? He started with a "how to" on dating and is now into business development, how to hire the best employees, mastermind materials and all manner of improvement e-books. The product isn't what caught my attention. What snagged me came at the end of the interview and upon hearing it all that came before slammed into place.
Eben operates from a true abundance mentality. He talks about the 80/20 rule. Traditionally this concept addresses the notion that 80% of one's income comes from 20% of one's activities. Pagan's use is radically different. Having coined the concept of “moving the free-line”, Pagan promotes the idea that by giving away for free the value that I have to offer, I still retain that value and now another person has what I gave them AND I receive more in return. For instance: I have a lit candle, which I use to light your candle. My candle is still lit and now yours is lit AND there is MORE light because 2 candles are burning. Make sense?
So how does this translate into generating Wealth? The trick is to break out of the “scarcity mindset” (there’s a finite amount of money in the world and I’m going to get my share) and re-focusing attention on creating and then providing value. Once you are providing genuine value the money will follow. How do we know what’s of value? Look for a “yes” answer to the following 3 questions:
1) Does what I’m offering alleviate a pain my target client is experiencing?
2) Is my target client actively looking to alleviate that pain?
3) Does my target client have few or zero perceived options for alleviating that pain?
If you get 3 “yes” answers then you have a product that will sell itself.
How do I come up with a product/service that provides real value? Pagan’s answer: “Seek first to understand”. Talk to your client/people in your target market and find out where their pain points are. Dive deep in the conversation with an authentic intention to discover what their needs are. Once you know what they are in search of and cannot find then you insight into what you can create/offer as a product/service.
So what is “The New Wealth” and how is it created? New wealth is money made from a product or service that provides real value and the money is generated by the principal of – when I give it away I still have it and now you have it and I’ve gained from the act of giving. The key: SEEK FIRST TO UNDERSTAND!
Eben operates from a true abundance mentality. He talks about the 80/20 rule. Traditionally this concept addresses the notion that 80% of one's income comes from 20% of one's activities. Pagan's use is radically different. Having coined the concept of “moving the free-line”, Pagan promotes the idea that by giving away for free the value that I have to offer, I still retain that value and now another person has what I gave them AND I receive more in return. For instance: I have a lit candle, which I use to light your candle. My candle is still lit and now yours is lit AND there is MORE light because 2 candles are burning. Make sense?
So how does this translate into generating Wealth? The trick is to break out of the “scarcity mindset” (there’s a finite amount of money in the world and I’m going to get my share) and re-focusing attention on creating and then providing value. Once you are providing genuine value the money will follow. How do we know what’s of value? Look for a “yes” answer to the following 3 questions:
1) Does what I’m offering alleviate a pain my target client is experiencing?
2) Is my target client actively looking to alleviate that pain?
3) Does my target client have few or zero perceived options for alleviating that pain?
If you get 3 “yes” answers then you have a product that will sell itself.
How do I come up with a product/service that provides real value? Pagan’s answer: “Seek first to understand”. Talk to your client/people in your target market and find out where their pain points are. Dive deep in the conversation with an authentic intention to discover what their needs are. Once you know what they are in search of and cannot find then you insight into what you can create/offer as a product/service.
So what is “The New Wealth” and how is it created? New wealth is money made from a product or service that provides real value and the money is generated by the principal of – when I give it away I still have it and now you have it and I’ve gained from the act of giving. The key: SEEK FIRST TO UNDERSTAND!
Tuesday, February 23, 2010
The New Wealth
Last night I watched a Tony Robbins’ interview with Eben Pagan, Internet marketing wiz kid. I say "kid" because he's only 38 and yet he's generated millions from internet marketing of his products. His products? He started with a "how to" on dating and is now into business development, how to hire the best employees, mastermind materials and all manner of improvement e-books. The product isn't what caught my attention. What snagged me came at the end of the interview and upon hearing it all that came before slammed into place.
Eben operates from a true abundance mentality. He talks about the 80/20 rule. Traditionally this concept addresses the notion that 80% of one's income comes from 20% of one's activities. Pagan's use is radically different. Having coined the concept of “moving the free-line”, Pagan promotes the idea that by giving away for free the value that I have to offer, I still retain that value and now another person has what I gave them AND I receive more in return. For instance: I have a lit candle, which I use to light your candle. My candle is still lit and now yours is lit AND there is MORE light because 2 candles are burning. Make sense?
So how does this translate into generating Wealth? The trick is to break out of the “scarcity mindset” (there’s a finite amount of money in the world and I’m going to get my share) and re-focusing attention on creating and then providing value. Once you are providing genuine value the money will follow. How do we know what’s of value? Look for a “yes” answer to the following 3 questions:
1) Does what I’m offering alleviate a pain my target client is experiencing?
2) Is my target client actively looking to alleviate that pain?
3) Does my target client have few or zero perceived options for alleviating that pain?
If you get 3 “yes” answers then you have a product that will sell itself.
How do I come up with a product/service that provides real value? Pagan’s answer: “Seek first to understand”. Talk to your client/people in your target market and find out where their pain points are. Dive deep in the conversation with an authentic intention to discover what their needs are. Once you know what they are in search of and cannot find then you insight into what you can create/offer as a product/service.
So what is “The New Wealth” and how is it created? New wealth is money made from a product or service that provides real value and the money is generated by the principal of – when I give it away I still have it and now you have it and I’ve gained from the act of giving. The key: SEEK FIRST TO UNDERSTAND!
Eben operates from a true abundance mentality. He talks about the 80/20 rule. Traditionally this concept addresses the notion that 80% of one's income comes from 20% of one's activities. Pagan's use is radically different. Having coined the concept of “moving the free-line”, Pagan promotes the idea that by giving away for free the value that I have to offer, I still retain that value and now another person has what I gave them AND I receive more in return. For instance: I have a lit candle, which I use to light your candle. My candle is still lit and now yours is lit AND there is MORE light because 2 candles are burning. Make sense?
So how does this translate into generating Wealth? The trick is to break out of the “scarcity mindset” (there’s a finite amount of money in the world and I’m going to get my share) and re-focusing attention on creating and then providing value. Once you are providing genuine value the money will follow. How do we know what’s of value? Look for a “yes” answer to the following 3 questions:
1) Does what I’m offering alleviate a pain my target client is experiencing?
2) Is my target client actively looking to alleviate that pain?
3) Does my target client have few or zero perceived options for alleviating that pain?
If you get 3 “yes” answers then you have a product that will sell itself.
How do I come up with a product/service that provides real value? Pagan’s answer: “Seek first to understand”. Talk to your client/people in your target market and find out where their pain points are. Dive deep in the conversation with an authentic intention to discover what their needs are. Once you know what they are in search of and cannot find then you insight into what you can create/offer as a product/service.
So what is “The New Wealth” and how is it created? New wealth is money made from a product or service that provides real value and the money is generated by the principal of – when I give it away I still have it and now you have it and I’ve gained from the act of giving. The key: SEEK FIRST TO UNDERSTAND!
Thursday, September 24, 2009
Its Official – Denver’s Real Estate Market has Hit Bottom!
This statement is accurate for homes priced in the under $350K range. How do we know this? The numbers tell us. Several factors play into the rally. Low interest rates, the First Time Home Buyer Tax Credit, pent up demand among Sellers, and a shift in the composition of distressed property sales to name a few.
REO volume, after strong gains for four years, is running at 2007 levels so far this year. REO volume, Jan-July, declined 31% between 2008 and 2009 and in June of 2008 hit an all time high of 1300 bank owned closings. As of Q1 2009 that number has plummeted to just above 600. Short Sales are on the rise from a low in January of 2008 of about 95 up to just under 400 in July 2009.
This recent run-up in foreclosures and short sales mirrors Denver’s last foreclosure boom. Last time (which peaked in 1988 at 3.8% of Denver homes in foreclosure), it took four years to fully recover from the foreclosure hangover. This time the peak came in 2008 at 3.5%.
And even though overall sales volume is still down, average detached-single-family property discounts have been trending up (2.7% discount) for regular homes, but have declined dramatically (-.5% discount) in recent months for foreclosure properties. REO homes under $185K are increasingly selling at a premium, not a discount, if they are under contract in less than 5 days (selling at premium of 8.5%). Intense competition and multiple bids are driving up prices. A strong sign that we are have hit the bottom and are on the rise.
What’s next for home prices? Our Guesses for 2009:
• Higher price points will have more REO activity
• Inexpensive homes under $200K will appreciate
• Mid-Priced homes $200-$350K have much less REO activity, sales volume has held steady in many areas and might continue in 2009
• Near-Luxury homes $350-$1MM with more than 12 months of inventory is a Strong Buyers market and prices will come under pressure for the few sellers that must sell
• Luxury homes ($1MM+) is a train wreck with over 60 months of inventory this will be the last segment to recover.
REO volume, after strong gains for four years, is running at 2007 levels so far this year. REO volume, Jan-July, declined 31% between 2008 and 2009 and in June of 2008 hit an all time high of 1300 bank owned closings. As of Q1 2009 that number has plummeted to just above 600. Short Sales are on the rise from a low in January of 2008 of about 95 up to just under 400 in July 2009.
This recent run-up in foreclosures and short sales mirrors Denver’s last foreclosure boom. Last time (which peaked in 1988 at 3.8% of Denver homes in foreclosure), it took four years to fully recover from the foreclosure hangover. This time the peak came in 2008 at 3.5%.
And even though overall sales volume is still down, average detached-single-family property discounts have been trending up (2.7% discount) for regular homes, but have declined dramatically (-.5% discount) in recent months for foreclosure properties. REO homes under $185K are increasingly selling at a premium, not a discount, if they are under contract in less than 5 days (selling at premium of 8.5%). Intense competition and multiple bids are driving up prices. A strong sign that we are have hit the bottom and are on the rise.
What’s next for home prices? Our Guesses for 2009:
• Higher price points will have more REO activity
• Inexpensive homes under $200K will appreciate
• Mid-Priced homes $200-$350K have much less REO activity, sales volume has held steady in many areas and might continue in 2009
• Near-Luxury homes $350-$1MM with more than 12 months of inventory is a Strong Buyers market and prices will come under pressure for the few sellers that must sell
• Luxury homes ($1MM+) is a train wreck with over 60 months of inventory this will be the last segment to recover.
Wednesday, August 19, 2009
I Walk the Line
“Papa bought this house when I was four years old. I’m sure that crack was there when we moved in. I’ve never even thought about it before because its been that way since I can remember.” . . . Forty years of family life in a single place - home. Birthday gatherings, Christmas mornings, BBQ’s, high school proms, Sunday suppers, running through the garden, building forts, sobs of sadness, screams of laughter. Into this hallowed space enters a buyer.
“Does this crack indicate structural issues? Why are all the window sills a different type of marble? We can always just tear it out and open this up. This will need to be dealt with.” The potential new owners of the home, for this brief and unique moment, the time between first seeing their new home and the moment they move in to begin building a life there, see 2 worlds – the one that has been and the one that will be. “We instantly saw entertaining guests well into the evening in a setting by which all who enter will undoubtedly be enchanted . . . the sweet home and all the land on which it sits feels hidden away from all the rest of the world. . . magical . . . like a retreat . . . just waiting for us.”
As an agent, I walk a fine line; on one side: working to stay present to the world of the Seller – attached yet needing to move on – on the other side: the world of the Buyer – desirous to own a new home yet cautious lest they take on more than can be comfortably handled. Buying and selling a home is an enormous financial transaction, one that takes skill, knowledge and great attention to detail. It is also a powerful emotional transition.
As artists our personal space is tremendously important. For performers home provides sanctuary from the public nature of our lives. For painters it may be the inspiration that fills canvases. For a musician the structure may be the sound proofing necessary to record our latest opus. For the writer it may provide a room of one’s own to ponder our thoughts. For a filmmaker it may contain the dark corner to view our work.
Home means something different to each individual or couple with whom I work and there are always at least two sides to every story, two sides of the line. One is letting go; the other is taking hold, stepping into the future. I am grateful to be walking that line between past and future. Many thanks to those of you who have invited me into your process. And for those of you who are considering making a transition I would be honored to walk the line with you.
“Does this crack indicate structural issues? Why are all the window sills a different type of marble? We can always just tear it out and open this up. This will need to be dealt with.” The potential new owners of the home, for this brief and unique moment, the time between first seeing their new home and the moment they move in to begin building a life there, see 2 worlds – the one that has been and the one that will be. “We instantly saw entertaining guests well into the evening in a setting by which all who enter will undoubtedly be enchanted . . . the sweet home and all the land on which it sits feels hidden away from all the rest of the world. . . magical . . . like a retreat . . . just waiting for us.”
As an agent, I walk a fine line; on one side: working to stay present to the world of the Seller – attached yet needing to move on – on the other side: the world of the Buyer – desirous to own a new home yet cautious lest they take on more than can be comfortably handled. Buying and selling a home is an enormous financial transaction, one that takes skill, knowledge and great attention to detail. It is also a powerful emotional transition.
As artists our personal space is tremendously important. For performers home provides sanctuary from the public nature of our lives. For painters it may be the inspiration that fills canvases. For a musician the structure may be the sound proofing necessary to record our latest opus. For the writer it may provide a room of one’s own to ponder our thoughts. For a filmmaker it may contain the dark corner to view our work.
Home means something different to each individual or couple with whom I work and there are always at least two sides to every story, two sides of the line. One is letting go; the other is taking hold, stepping into the future. I am grateful to be walking that line between past and future. Many thanks to those of you who have invited me into your process. And for those of you who are considering making a transition I would be honored to walk the line with you.
“I think the most significant work we ever do,
in the whole world, in our whole life,
is done within the four walls of our own home.”
Stephen R. Covey
in the whole world, in our whole life,
is done within the four walls of our own home.”
Stephen R. Covey
Wednesday, August 12, 2009
Ponies are Driving the Market
OK so, Weds is my blog day and I always look forward to spending a few minutes writing. This morning began like any other Weds – I brought my computer into my art studio, got comfortable and began to put down some ideas to share. But it didn’t come so easy today and the results of my efforts were rather dry but informative so I figured what the heck, I can’t be brilliant every time.
But when I went to upload my entry I discovered my internet connection was kaput. Now that wouldn’t normally be any big deal but on top of the sewer back up, the hailstorm, the basement flood, my assistant quitting, 2 deals falling through it was the proverbial straw!
To my rescue came my wonderful biz partner, Lil, who encouraged me to shift my perspective by telling me a story that I want to share with you:
There was a psychiatrist doing a study on tolerance levels and how individuals respond to adversity. For his experiment he filled a large room 4 feet deep with horse manure and then invited various people to enter the room. Every single person who entered the room was filled with disgust - except one young boy. When the boy entered and immediately began diving and building, rolling around, making snowmen and building wacky structures. After an hour or so the boy finished playing and exited the room. The psychiatrist was fascinated by the boy’s reaction and wanting to understand why his reaction was so different asked the boy, “So talk to me. What were you thinking in there?” The boy’s response . . . “With that much horse shit I figured there had to be a pony in there somewhere!”
Thanks for the wisdom and the laugh Lil! And now on to the original blog entry.
Just the Facts! Real Estate Market Update
If you haven’t heard yet the Denver real estate market is shifting.
For the first time in years median home prices were a little higher in July 2009 at $229,900 than July 2008, at $229,200. The average home price Jan-July 2009 vs. the same period 2008 is down 6% compared to an 8% drop in the period Jan-May 2009. The price range from $200-$300K saw the most activity this July.
The drop in Denver single-family (DSF) unit volume, Jan-Jul 2009 vs. the same period in 2008 is down 18% compared to –21% Jan-May.
These numbers might not sound like anything to shout about but when we consider bank-owned properties under $185K we see the beginnings of a return to property selling at a premium.
For the DSF homes that sold in 5 days or less, the discount has been history since about Feb 2008. In July of this year these distressed properties sold at an 8.5% premium. Homes selling in 10-30 days the typical property started selling at a premium, not a discount, in August 2008 and that premium has grown to about a 3% average. Bank Owned or REO properties taking more than 30 days to sell continue to sell at a discount, but that discount is declining. Regular homes in the under %185K range are still selling at a modest discount of about 2% and this has been steady for a while.
But when I went to upload my entry I discovered my internet connection was kaput. Now that wouldn’t normally be any big deal but on top of the sewer back up, the hailstorm, the basement flood, my assistant quitting, 2 deals falling through it was the proverbial straw!
To my rescue came my wonderful biz partner, Lil, who encouraged me to shift my perspective by telling me a story that I want to share with you:
There was a psychiatrist doing a study on tolerance levels and how individuals respond to adversity. For his experiment he filled a large room 4 feet deep with horse manure and then invited various people to enter the room. Every single person who entered the room was filled with disgust - except one young boy. When the boy entered and immediately began diving and building, rolling around, making snowmen and building wacky structures. After an hour or so the boy finished playing and exited the room. The psychiatrist was fascinated by the boy’s reaction and wanting to understand why his reaction was so different asked the boy, “So talk to me. What were you thinking in there?” The boy’s response . . . “With that much horse shit I figured there had to be a pony in there somewhere!”
Thanks for the wisdom and the laugh Lil! And now on to the original blog entry.
Just the Facts! Real Estate Market Update
If you haven’t heard yet the Denver real estate market is shifting.
For the first time in years median home prices were a little higher in July 2009 at $229,900 than July 2008, at $229,200. The average home price Jan-July 2009 vs. the same period 2008 is down 6% compared to an 8% drop in the period Jan-May 2009. The price range from $200-$300K saw the most activity this July.
The drop in Denver single-family (DSF) unit volume, Jan-Jul 2009 vs. the same period in 2008 is down 18% compared to –21% Jan-May.
These numbers might not sound like anything to shout about but when we consider bank-owned properties under $185K we see the beginnings of a return to property selling at a premium.
For the DSF homes that sold in 5 days or less, the discount has been history since about Feb 2008. In July of this year these distressed properties sold at an 8.5% premium. Homes selling in 10-30 days the typical property started selling at a premium, not a discount, in August 2008 and that premium has grown to about a 3% average. Bank Owned or REO properties taking more than 30 days to sell continue to sell at a discount, but that discount is declining. Regular homes in the under %185K range are still selling at a modest discount of about 2% and this has been steady for a while.
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