Investors dealt tax blow over depreciation deduction
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Judge questions time spent on showings, fielding phone calls
Wednesday, December 27, 2006
Ulysses Lee was a full-time IRS tax examiner. His brother, Kai, worked as a full-time professor of radiology. Together, they are partners in Lee Brothers Investments, which owns a rental house, a five-unit apartment building and another small apartment building. Each investor also owns several rental properties individually.
On their income tax returns, the brothers claimed passive activity tax loss deductions, mostly from depreciation of their properties, against their substantial ordinary income from their full-time jobs.
Upon audit by the IRS, using Internal Revenue Code 469(c)(7)(B), they claimed each brother performed more than 750 hours of real estate professional services annually (about 14 hours per week) and more than one-half of their personal services are performed operating their properties.
On their income tax returns, the brothers depreciated their properties on a 10-year depreciation basis, rather than the 27.5 years required by IRS straight-line depreciation rules. When the IRS denied the accelerated depreciation deductions, and denied the unlimited real estate tax losses against the ordinary job incomes, the brothers took their dispute to the U.S. Tax Court.
If you were the U.S. Tax Court judge would you allow the brothers to use accelerated depreciation and to qualify as real estate professionals?
The judge said no!
There is no question Ulysses Lee and Kai Lee spent considerable time involved with their real estate investment properties, the judge began. They qualify as "material participants" in their real estate ventures, he opined.
However, their "ballpark guesstimate" of the time spent on different real estate activities were not contemporaneous logs, the judge continued. "We do not find the logs, or the testimony accompanying them, credible," he added.
The judge found 280 hours to close the books on their investments to complete their tax returns, 24 hours to replace miniblinds, 186 hours to show vacant apartments, and 200 hours answering phone calls from prospective tenants over a two-year period to be excessive.
"The exaggeration of their logs of real estate work was matched by understatements of time spent at their full-time jobs," the judge noted. In addition to the extra tax due, the judge assessed penalties for negligence because neither taxpayer could be considered a real estate professional working at least 750 hours annually.
Based on the 2006 U.S. Tax Court decision in Kai and Ulysses Lee v. Commissioner, 92 Tax Court Memo 2006-193.
Friday, December 29, 2006
Tuesday, December 19, 2006
Denver Metro Mortgage News - Housing still far from hitting bottom
Housing still far from hitting bottom
by Lou Barnes
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Mortgage market commentary
Friday, December 15, 2006
Good economic news all week long had mortgage rates headed for an up-side blowout until rescued by today's word of zero change in November's Consumer Price Index. Do not be misled: for long-term mortgage rates to hold near 6 percent -- let alone decline further -- the economy has to sink, and that is not what it is doing.
The killer this week was retail sales, up a solid 1 percent in November, and October revised up. Then came word of falling applications for unemployment insurance and a surge in applications for new purchase mortgages -- the first real gain in a year, up 15 percent in just three weeks in a usually quiet season.
The basis for belief in a substantial economic downturn, Fed easing, and justification for a 4.5 percent 10-year Treasury and six-flat mortgages has been housing's implosion. Overall, the housing market is still some distance from hitting bottom (house prices may begin to stabilize, but loan defaults and foreclosures will rise for a year or more, and resumed price appreciation is a long way off), but there is no sign that housing weakness is undercutting consumers.
Back in September, the Fed rounded up every money-lending regulator to issue a "guidance" to banks, S&Ls, credit unions, and Fannie Mae and Freddie Mac, ordering them to tighten underwriting and advertising standards for "nontraditional mortgages," defined as any loan with interest-only or negative-amortization provisions of any kind. In the world of banking, a Fed guidance is a bolt of Jovian lightning -- fail to pay attention, and you will fry.
The events involved resemble policy-making in the Green Zone:
1. The guidance is about five years too late.
2. The central demands, a significant tightening of credit, are laudable: Thou shalt underwrite all interest-only loans as if amortized, and all negative-amortizing loans by amortizing the highest potential balance. Thou shalt cease thy deceptive (and stupid) advertising: "ONE percent FIXED for THIRTY years!"
3. The guidance, however, missed the big targets. To a nation in desperate need of reform of subprime lending: Thou shalt pay attention to our edicts of 1999 and 2001. The totally ineffective ones. Yes, those. Thy 100 percent piggybacks may continue, but thou shalt be careful or we shall warn thee again and again and again.
4. The entire mortgage industry ignored the guidance. Totally. Our firm has not received a single e-mail from any wholesaler even considering compliance with the interest-only and negative-am requirements.
5. Yesterday, the Office of Federal Housing Enterprise Oversight, Fannie and Freddie's regulator, apparently noticed the cold shoulder and sent to them a blistering letter demanding immediate compliance.
6. It is incredible to me that the Fed has not discovered that mortgage lending became a Wall Street business 20 years ago. The Fed can shoot all the lightning it wants at banks, but they aren't lenders anymore, just originators and conduits like the broker working in the house next door.
7. Main Street underwriting standards are based on the terms of loans that Wall Street will buy. If an investment bank's wholesale mortgage subsidiary will buy some piece of total mortgage crap because its back-office wise guys can lay off the risk to a sucker in the credit-derivative market, then a nice, upstanding Main Street "lender" will accommodate the desire of a suicidal home buyer or refinancer. Sign here.
8. The Fed will sooner or later figure this out (a rocket to the Street's "primary dealers" will be required), and thereby do the one thing worse than slam the door on an empty barn: slam it on the ankle of the housing market while it's running for cover, while the credit-burned bond market is already swinging shut on its own.
9. It's a great country. Really.
by Lou Barnes
--------------------------------------------------------------------------------
Mortgage market commentary
Friday, December 15, 2006
Good economic news all week long had mortgage rates headed for an up-side blowout until rescued by today's word of zero change in November's Consumer Price Index. Do not be misled: for long-term mortgage rates to hold near 6 percent -- let alone decline further -- the economy has to sink, and that is not what it is doing.
The killer this week was retail sales, up a solid 1 percent in November, and October revised up. Then came word of falling applications for unemployment insurance and a surge in applications for new purchase mortgages -- the first real gain in a year, up 15 percent in just three weeks in a usually quiet season.
The basis for belief in a substantial economic downturn, Fed easing, and justification for a 4.5 percent 10-year Treasury and six-flat mortgages has been housing's implosion. Overall, the housing market is still some distance from hitting bottom (house prices may begin to stabilize, but loan defaults and foreclosures will rise for a year or more, and resumed price appreciation is a long way off), but there is no sign that housing weakness is undercutting consumers.
Back in September, the Fed rounded up every money-lending regulator to issue a "guidance" to banks, S&Ls, credit unions, and Fannie Mae and Freddie Mac, ordering them to tighten underwriting and advertising standards for "nontraditional mortgages," defined as any loan with interest-only or negative-amortization provisions of any kind. In the world of banking, a Fed guidance is a bolt of Jovian lightning -- fail to pay attention, and you will fry.
The events involved resemble policy-making in the Green Zone:
1. The guidance is about five years too late.
2. The central demands, a significant tightening of credit, are laudable: Thou shalt underwrite all interest-only loans as if amortized, and all negative-amortizing loans by amortizing the highest potential balance. Thou shalt cease thy deceptive (and stupid) advertising: "ONE percent FIXED for THIRTY years!"
3. The guidance, however, missed the big targets. To a nation in desperate need of reform of subprime lending: Thou shalt pay attention to our edicts of 1999 and 2001. The totally ineffective ones. Yes, those. Thy 100 percent piggybacks may continue, but thou shalt be careful or we shall warn thee again and again and again.
4. The entire mortgage industry ignored the guidance. Totally. Our firm has not received a single e-mail from any wholesaler even considering compliance with the interest-only and negative-am requirements.
5. Yesterday, the Office of Federal Housing Enterprise Oversight, Fannie and Freddie's regulator, apparently noticed the cold shoulder and sent to them a blistering letter demanding immediate compliance.
6. It is incredible to me that the Fed has not discovered that mortgage lending became a Wall Street business 20 years ago. The Fed can shoot all the lightning it wants at banks, but they aren't lenders anymore, just originators and conduits like the broker working in the house next door.
7. Main Street underwriting standards are based on the terms of loans that Wall Street will buy. If an investment bank's wholesale mortgage subsidiary will buy some piece of total mortgage crap because its back-office wise guys can lay off the risk to a sucker in the credit-derivative market, then a nice, upstanding Main Street "lender" will accommodate the desire of a suicidal home buyer or refinancer. Sign here.
8. The Fed will sooner or later figure this out (a rocket to the Street's "primary dealers" will be required), and thereby do the one thing worse than slam the door on an empty barn: slam it on the ankle of the housing market while it's running for cover, while the credit-burned bond market is already swinging shut on its own.
9. It's a great country. Really.
Monday, December 18, 2006
Should buyers stretch finances to buy in Denver's Real Estate market?
Should buyers stretch finances to buy in today's market?
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Deciding on long-term housing needs
Monday, December 18, 2006
There are pros and cons to stretching financially to buy a home. An advantage of pushing the limit of what you can afford to pay is that you may save in the long run if this means that you move less often in the future. The fees involved with buying and selling homes can add up to tens of thousands of dollars, or more. Also, moving takes time and energy. Less moving means less disruption.
On the other hand, if you make a big leap monetarily, lose your job and can't afford to make the monthly mortgage payments, you could lose the house and jeopardize your good credit. Buyers who stretch to buy a new home and count on a big payout from the home they'll be selling may be vulnerable in the current market if they're depending on a large sum and the property sells for less than what they expected.
Despite the risks, there are compelling reasons for many buyers to move now to a home that better suits their long-term needs: There is less competition from other buyers; competition tends to drive prices higher; and interest rates are still in the mid-6 percent range for 30-year fixed-rate financing -- low by historical standards.
However, buyers who need the equity from their current home should give serious thought to selling before buying a more expensive home, particularly if there's no margin for error. Some buyers who recently bought first have had difficulty selling their old home.
Real estate is a local business. There is a lot of variability from one market to another. In some areas, well-priced homes are selling relatively quickly and in other areas listings are sitting for months. The longer your home sits on the market, the more it ultimately costs to make the move.
Pricing right for the market is the key to success. It's difficult for most sellers to hear that they won't be able to sell their home for as much as they'd hoped. And, unfortunately, there are some real estate agents who are willing to tell sellers what they want to hear to obtain a listing.
HOUSE HUNTING TIP: Don't get carried away by an agent's enthusiasm for your home. Ask for solid information about the probable selling price for your home. The most reliable comparable sales will be the ones that sold most recently, not those that sold six months ago when the market was different.
Tapping equity before you sell is easy enough. There are plenty of lenders who will give you an equity line of credit secured against the home you're selling, often based simply on your estimate of the property's value and a drive-by appraisal. Even so, it's best to be conservative about the value of your home. In this market, you won't know for sure how much cash you'll net from the sale until the property is sold.
Most buyers stretch to buy, banking on the fact that their financial situation will improve within a few years. There are mortgage products designed to help you buy over your immediate affordability. One such product is the interest-only mortgage, which enables you to make lower, interest-only payments for up to 10 or so years.
These mortgages serve a purpose. But, they can become problematic if your financial future doesn't turn out as planned and you don't have the resources to pay the much higher mortgage payments that could follow when the initial interest-only payment period expires.
THE CLOSING: Buying a home you can grow in to over time is a great idea as long as you fully understand the risks and rewards involved before you make the commitment.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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Deciding on long-term housing needs
Monday, December 18, 2006
There are pros and cons to stretching financially to buy a home. An advantage of pushing the limit of what you can afford to pay is that you may save in the long run if this means that you move less often in the future. The fees involved with buying and selling homes can add up to tens of thousands of dollars, or more. Also, moving takes time and energy. Less moving means less disruption.
On the other hand, if you make a big leap monetarily, lose your job and can't afford to make the monthly mortgage payments, you could lose the house and jeopardize your good credit. Buyers who stretch to buy a new home and count on a big payout from the home they'll be selling may be vulnerable in the current market if they're depending on a large sum and the property sells for less than what they expected.
Despite the risks, there are compelling reasons for many buyers to move now to a home that better suits their long-term needs: There is less competition from other buyers; competition tends to drive prices higher; and interest rates are still in the mid-6 percent range for 30-year fixed-rate financing -- low by historical standards.
However, buyers who need the equity from their current home should give serious thought to selling before buying a more expensive home, particularly if there's no margin for error. Some buyers who recently bought first have had difficulty selling their old home.
Real estate is a local business. There is a lot of variability from one market to another. In some areas, well-priced homes are selling relatively quickly and in other areas listings are sitting for months. The longer your home sits on the market, the more it ultimately costs to make the move.
Pricing right for the market is the key to success. It's difficult for most sellers to hear that they won't be able to sell their home for as much as they'd hoped. And, unfortunately, there are some real estate agents who are willing to tell sellers what they want to hear to obtain a listing.
HOUSE HUNTING TIP: Don't get carried away by an agent's enthusiasm for your home. Ask for solid information about the probable selling price for your home. The most reliable comparable sales will be the ones that sold most recently, not those that sold six months ago when the market was different.
Tapping equity before you sell is easy enough. There are plenty of lenders who will give you an equity line of credit secured against the home you're selling, often based simply on your estimate of the property's value and a drive-by appraisal. Even so, it's best to be conservative about the value of your home. In this market, you won't know for sure how much cash you'll net from the sale until the property is sold.
Most buyers stretch to buy, banking on the fact that their financial situation will improve within a few years. There are mortgage products designed to help you buy over your immediate affordability. One such product is the interest-only mortgage, which enables you to make lower, interest-only payments for up to 10 or so years.
These mortgages serve a purpose. But, they can become problematic if your financial future doesn't turn out as planned and you don't have the resources to pay the much higher mortgage payments that could follow when the initial interest-only payment period expires.
THE CLOSING: Buying a home you can grow in to over time is a great idea as long as you fully understand the risks and rewards involved before you make the commitment.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Tuesday, December 12, 2006
Denver Home Buyers: Get an Inspection!
FYI: Read this column and hear how Buyers are being advised not to inspect "As Is" properties (such as HUD Homes and bank foreclosures). While these sellers are not necessarily going to repair any damage you find, this is an additional reason to find the damage rather than reason to forgo this critical check. You could be purchasing a home that is replete with expensive repairs not evident to you, the Buyer, or to your Agent (who is NOT a home-repair expert).
Oftentimes you can get out of the contract after the inspection of homes sold "As Is" if the repairs seem too much to you. An exception to this can be the HUD purchase, which provides their inspection on the website for your review before bidding and you may not enter the home for a full inspection until you have successfully bid. However, losing earnest funds may pale in perspective to the cost of repairs and there may be recourse, depending on your bid circumstances.
There are an unprecendented flood of HUDS and bank foreclosures in Denver and many Agents are selling them for the first time or are not experienced in working with HUD or foreclosures. The typical negotiations surrounding the inspection of the "As Is" property and the usual owner-occupied home are very different, but an inspection is still the rule. Always get an inspection! Happy Hunting, Marie
Inman News Features
Get inspection before buying repossessed house
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Agent's advice can't always be trusted
Tuesday, December 12, 2006
Dear Barry,
We recently purchased a bank-repossessed house. When we made our offer, our agent advised us not to get a home inspection since it was just an additional cost to us and the bank would not fix anything anyway. In hindsight, we realize that we should have had an inspection because the roof leaks and we get standing water around the foundation during wet weather. Do we have recourse or did we just make a huge mistake in not getting an inspection? --Barbara
Dear Barbara,
Let me begin with a message for everyone who may consider buying a home and for every agent who is reading this column: Any agent who advises a client not to have a home inspection, regardless of the circumstances of the transaction, should be placed in stocks, as was common punishment for disgraceful behavior in 17th century colonial America.
Advising a client to forego a home inspection is the height of misrepresentation. It is a major ethical breach -- the act of a "slick" salesperson or of someone who is inexcusably naive.
The purpose of a home inspection is not to prepare a repair list for the seller. Your agent's reasoning, therefore, was irrelevant. A home inspection is meant to inform you of the condition of what you are buying. A home inspector does not merely report on conditions that the seller might repair, but on conditions that you might have to repair or on safety violations that could have life-threatening consequences.
Your agent is clearly in need of re-education as to the meaning and intent of real estate disclosure. Whether you have recourse is a legal question that can be answered only by a real estate attorney. In the mean time, it would be wise to have an after-purchase home inspection to learn what additional defects await discovery. And be sure to find a highly experienced home inspector with a reputation for comprehensive thoroughness.
Dear Barry,
We bought our home six months ago and had it professionally inspected. At that time, there were no apparent problems with the swimming pool. But two weeks after moving in, we could tell that the pool was losing water. Sure enough, a leak detection company discovered leakage in the underground piping, a condition no home inspector could have discovered. The sellers reimbursed the $200 leak detection fee but refused to pay for repairs. They claim no knowledge of any previous leakage, but this does not seem plausible to us. Do we have any recourse? --Matt
Dear Matt,
It seems highly unlikely that the pool level only began to recede when you took possession of the property. The sellers, it would seem, must have known the pool was losing water, because periodic refilling would have been necessary to provide a full pool at the close of escrow.
Depending upon the cost of repairs, you might try testing this case in small claims court. In preparing your case, you should ask the neighbors if they are aware of any problems with the pool. Additionally, you should call as many pool maintenance companies as are listed in your phone book to see if any have worked on your pool and if their records show that this problem was diagnosed.
To write to Barry Stone, please visit him on the Web at www.housedetective.com.
Oftentimes you can get out of the contract after the inspection of homes sold "As Is" if the repairs seem too much to you. An exception to this can be the HUD purchase, which provides their inspection on the website for your review before bidding and you may not enter the home for a full inspection until you have successfully bid. However, losing earnest funds may pale in perspective to the cost of repairs and there may be recourse, depending on your bid circumstances.
There are an unprecendented flood of HUDS and bank foreclosures in Denver and many Agents are selling them for the first time or are not experienced in working with HUD or foreclosures. The typical negotiations surrounding the inspection of the "As Is" property and the usual owner-occupied home are very different, but an inspection is still the rule. Always get an inspection! Happy Hunting, Marie
Inman News Features
Get inspection before buying repossessed house
--------------------------------------------------------------------------------
Agent's advice can't always be trusted
Tuesday, December 12, 2006
Dear Barry,
We recently purchased a bank-repossessed house. When we made our offer, our agent advised us not to get a home inspection since it was just an additional cost to us and the bank would not fix anything anyway. In hindsight, we realize that we should have had an inspection because the roof leaks and we get standing water around the foundation during wet weather. Do we have recourse or did we just make a huge mistake in not getting an inspection? --Barbara
Dear Barbara,
Let me begin with a message for everyone who may consider buying a home and for every agent who is reading this column: Any agent who advises a client not to have a home inspection, regardless of the circumstances of the transaction, should be placed in stocks, as was common punishment for disgraceful behavior in 17th century colonial America.
Advising a client to forego a home inspection is the height of misrepresentation. It is a major ethical breach -- the act of a "slick" salesperson or of someone who is inexcusably naive.
The purpose of a home inspection is not to prepare a repair list for the seller. Your agent's reasoning, therefore, was irrelevant. A home inspection is meant to inform you of the condition of what you are buying. A home inspector does not merely report on conditions that the seller might repair, but on conditions that you might have to repair or on safety violations that could have life-threatening consequences.
Your agent is clearly in need of re-education as to the meaning and intent of real estate disclosure. Whether you have recourse is a legal question that can be answered only by a real estate attorney. In the mean time, it would be wise to have an after-purchase home inspection to learn what additional defects await discovery. And be sure to find a highly experienced home inspector with a reputation for comprehensive thoroughness.
Dear Barry,
We bought our home six months ago and had it professionally inspected. At that time, there were no apparent problems with the swimming pool. But two weeks after moving in, we could tell that the pool was losing water. Sure enough, a leak detection company discovered leakage in the underground piping, a condition no home inspector could have discovered. The sellers reimbursed the $200 leak detection fee but refused to pay for repairs. They claim no knowledge of any previous leakage, but this does not seem plausible to us. Do we have any recourse? --Matt
Dear Matt,
It seems highly unlikely that the pool level only began to recede when you took possession of the property. The sellers, it would seem, must have known the pool was losing water, because periodic refilling would have been necessary to provide a full pool at the close of escrow.
Depending upon the cost of repairs, you might try testing this case in small claims court. In preparing your case, you should ask the neighbors if they are aware of any problems with the pool. Additionally, you should call as many pool maintenance companies as are listed in your phone book to see if any have worked on your pool and if their records show that this problem was diagnosed.
To write to Barry Stone, please visit him on the Web at www.housedetective.com.
Monday, December 11, 2006
Selling Your Home in Denver? A Must-Read!
Inman News Features
Overpricing a home could lead to no sale
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Sellers need to stay on top of rapidly changing markets
Monday, December 11, 2006
Overpriced home listings usually don't sell in any market. In today's market, there's no margin for error when selecting a list price. If your price is too high, the market can literally pass you by.
Many sellers ask: What's the harm in pricing high initially? You can always come down. While this is true enough, you may end up with a lower selling price if you start too high to begin with, particularly if the market is declining.
Today's real estate market is generally balanced, although there have been modest declines in median sales price in some areas. Prices are still going up in areas with low inventory and high demand, but the appreciation rate in these areas is slower than it has been in recent years.
Given today's market conditions, buyers are more cautious about home purchases than they were last year. They are looking for value. A high price sends a message that you are out of touch with the market. Making an offer takes a lot of time and energy. Most buyers aren't willing to do this if they think that the seller is unreasonable.
Another factor that can keep buyers from making offers on overpriced listings is that they don't want to offend the sellers. Buyers feel that a low offer might jeopardize their chances of buying the property. They'd rather wait to see if the sellers lower their price before making an offer.
There is more emotion involved in a home purchase than in most other business negotiations. Home buyers usually need to feel passionate about a property before they'll make an offer. Today's buyers are concerned about overpaying in a soft market. It's hard for them be enthusiastic enough to make an offer if a listing is priced too high. A listing that might look great to them at the right price might not even be appealing at an above-market price.
So, one risk of overpricing is that you don't receive any offers at all. Another related risk is that your home might not even be shown to buyers if it's priced too high. There usually is a direct correlation between the amount of showings a listing receives and the time it takes to sell.
HOME SELLER TIP: Sellers who live in areas where prices are declining need to be particularly careful not to overprice their homes. Before your home goes on the market, ask your agent to update the market evaluation of your home that was done before you listed to make sure that the recommended price range still holds. If not, readjust the price before you hit the market. Your home is most marketable when it's new on the market. So capitalize on this enthusiasm by presenting a good product at the right price.
Since the market is always changing, you may find that your list price could be too high soon after your home is on the market. Many sellers object to lowering their price too quickly. They're afraid they'll leave money on the table.
However, the best time to lower your price is as soon as you discover that the price is high. This way you quickly rekindle interest in your property. Leaving your home on the market too long at a high price can cost you money if prices decline.
After your home is on the market, keep an eye on your competition. Ask your agent to keep you informed about listing activity in your area. Find out which listings are selling and which aren't. How does your home stack up in comparison?
THE CLOSING: Pricing lower than your competitors can often bring about the desired result.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Overpricing a home could lead to no sale
--------------------------------------------------------------------------------
Sellers need to stay on top of rapidly changing markets
Monday, December 11, 2006
Overpriced home listings usually don't sell in any market. In today's market, there's no margin for error when selecting a list price. If your price is too high, the market can literally pass you by.
Many sellers ask: What's the harm in pricing high initially? You can always come down. While this is true enough, you may end up with a lower selling price if you start too high to begin with, particularly if the market is declining.
Today's real estate market is generally balanced, although there have been modest declines in median sales price in some areas. Prices are still going up in areas with low inventory and high demand, but the appreciation rate in these areas is slower than it has been in recent years.
Given today's market conditions, buyers are more cautious about home purchases than they were last year. They are looking for value. A high price sends a message that you are out of touch with the market. Making an offer takes a lot of time and energy. Most buyers aren't willing to do this if they think that the seller is unreasonable.
Another factor that can keep buyers from making offers on overpriced listings is that they don't want to offend the sellers. Buyers feel that a low offer might jeopardize their chances of buying the property. They'd rather wait to see if the sellers lower their price before making an offer.
There is more emotion involved in a home purchase than in most other business negotiations. Home buyers usually need to feel passionate about a property before they'll make an offer. Today's buyers are concerned about overpaying in a soft market. It's hard for them be enthusiastic enough to make an offer if a listing is priced too high. A listing that might look great to them at the right price might not even be appealing at an above-market price.
So, one risk of overpricing is that you don't receive any offers at all. Another related risk is that your home might not even be shown to buyers if it's priced too high. There usually is a direct correlation between the amount of showings a listing receives and the time it takes to sell.
HOME SELLER TIP: Sellers who live in areas where prices are declining need to be particularly careful not to overprice their homes. Before your home goes on the market, ask your agent to update the market evaluation of your home that was done before you listed to make sure that the recommended price range still holds. If not, readjust the price before you hit the market. Your home is most marketable when it's new on the market. So capitalize on this enthusiasm by presenting a good product at the right price.
Since the market is always changing, you may find that your list price could be too high soon after your home is on the market. Many sellers object to lowering their price too quickly. They're afraid they'll leave money on the table.
However, the best time to lower your price is as soon as you discover that the price is high. This way you quickly rekindle interest in your property. Leaving your home on the market too long at a high price can cost you money if prices decline.
After your home is on the market, keep an eye on your competition. Ask your agent to keep you informed about listing activity in your area. Find out which listings are selling and which aren't. How does your home stack up in comparison?
THE CLOSING: Pricing lower than your competitors can often bring about the desired result.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Sunday, December 10, 2006
A Real Estate Library for Denver's Home Buyers, Sellers and Investors
Inman News Features
10 best real estate books of 2006
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Explore art of negotiation, buying home with bad credit, timing market
Friday, December 08, 2006
Each week I read and review at least one new real estate book. At the end of each year, it is my honor to select from these 52 books the "top 10" real estate books. 2006 was an especially difficult year to select the best because there were so many new, high-quality realty books.
All of these excellent real estate books are available in stock or by special order at local bookstores, public libraries, and www.Amazon.com. Here are the 10 best real estate books of 2006, plus five Honorable Mentions:
Purchase Bob Bruss reports online.
1. "Trump-Style Negotiation," by George Ross (John Wiley and Sons, Hoboken, NJ), $24.95, 259 pages. This unique book offers insights into Donald J. Trump's big-thinking negotiation style, which leaves the contract details to his trusted adviser, George Ross. Only serious real estate buyers, sellers, real estate agents and investors will study this extremely well-written book that reveals negotiation tactics not found elsewhere, illustrated with many actual examples from Trump acquisitions.
2. "The Automatic Millionaire Homeowner," by David Bach (Broadway Books, New York), $19.95, 244 pages. If you could read only one real estate book, whether you are a renter considering a home purchase, a current homeowner, a seasoned realty investor or a real estate agent, this is the book for you because it shows how home ownership can lead to wealth. The book's two themes are (a) renters can become millionaires by investing in their first house or condo and (b) that residence can become the foundation for a better home or more investment property in future years.
3. "Buy Even Lower," by Scott Frank and Andy Heller (Kaplan Publishing Co., Chicago) $18.95, 238 pages. Aimed at real estate investors and real estate sales agents, this book, by two full-time corporate executives and part-time realty investors, shows how they buy single-family houses at targeted below-market prices and then either buy and hold, buy and flip, or (their favorite) buy and lease-purchase. The authors favor "ugly and awful" three-bedroom, two-bathroom houses in middle-income neighborhoods.
4. "Real Estate Debt Can Make You Rich," by Steve Dexter (McGraw-Hill, New York), $21.95, 156 pages. The two audiences for this book, which explains why real estate debt is good, are (a) home buyers and realty agents who want to understand the inner-workings of the mortgage industry and (b) investors who need to know how "good debt" can be created to maximize realty profits. The mortgage-broker author reveals how avoiding "inexperienced and inept loan hacks" can obtain the best mortgages to buy a home or investment property. The book includes the best compilation of real estate Web sites available.
5. "Bubbles, Booms, and Busts; Make Money in Any Real Estate Market," by Blanche Evans (McGraw-Hill, New York), $16.95, 167 pages. This extremely well-researched and up-to-date book explains the signals of local rising, falling or neutral local home sales markets, and how to profit in any situation if you take a long-term perspective on home sales. "Except for local economic shocks, like the collapse or exit of a major employer, home prices nationwide have not gone down since the Great Depression," the author reminds readers.
6. "Success as a Real Estate Agent for Dummies," by Dirk Zeller (Wiley Publishing Co., Indianapolis, IN), $21.99, 350 pages. Whether you are a new real estate agent, a longtime "old pro" agent or an individual thinking about becoming an agent, this basic book by a real estate "coach" explains what is involved in selling real estate for sales commissions, how to use sales time management profitably, and how to get started fast by contacting expired listings and "for sale by owners." The book includes an invaluable list of Web sites for realty agents plus the author's advice how to gain competitive advantages by obtaining a "slice of the market."
7. "Everything You Need to Know Before Buying a Co-Op, Condo, or Townhouse," by Ken Roth (AMACOM Publishing, New York), $18.95, 197 pages. The real estate attorney author shares his many legal and real-life personal experiences so readers don't make costly mistakes when buying into the unique lifestyle of these properties. Heavy emphasis is placed on the pros and cons of homeowner associations, including "condo commando" members who seek to take charge of the "mini-democracy" members.
8. "Who Says You Can't Buy a Home?" by David Reed (AMACOM Publishing, New York), $17.95, 182 pages. This mortgage-broker author is on the side of home buyers and real estate agents as he explains how mortgage lenders look at borrowers in this "tell all" book." "Anyone with steady income, no matter how bad their credit rating, or even with no credit, can find a mortgage to buy a home," the author reveals.
9. "Confessions of a Real Estate Entrepreneur," by James A. Randel (McGraw-Hill, New York), $29.95, 256 pages. This book's theme is "add value" to real estate, whether you invest in raw land, houses, run-down factory buildings with rezoning potential, or fixer-upper apartments and offices. The self-deprecating author shares his mistakes and his successes, along with his advice to invest with as little of your own cash as possible so profits can be maximized. Negotiation strategies are heavily emphasized throughout this unusual book.
10. "The Reverse Mortgage Advantage," by Warren Boroson (McGraw-Hill, New York), $21.95, 169 pages. Virtually all the key aspects of senior-citizen reverse mortgages are thoroughly explained in this detailed but easy-to-read book that emphasizes the potential pitfalls as well as the major benefits. The author shatters the reverse-mortgage myths, such as "the bank owns the house," the supposed high costs, and even the scary stories of early reverse mortgages, which are no longer possible.
HONORABLE MENTION:
11. "Trump: The Best Real Estate Advice I Ever Received," by Donald J. Trump (Thomas Nelson Publishers-Rutledge Hill Press, Nashville), $19.99, 273 pages. This is the most unusual real estate book of 2006 because it has 100 successful real estate investing, brokerage and marketing co-authors (including me) who contributed 100 chapters revealing the best realty advice ever received. What do all these realty entrepreneurs have in common (other than being very diverse individuals)? "Apprentice" Bill Ransic said it best: "Learn to recognize value."
12. "Find it, Fix it, Flip it!" by Michael Corbett (Plume Books-Penquin Group, New York), $15.00, 323 pages. This author, host of the TV Extra program "Mansions and Millionaires," created a technique of changing a fix-up home's lifestyle from dull routine to upscale, but without high renovation costs. The before-and-after photos are amazing. The "profit calculator chart" shows readers how to spot the potential profit by purchasing problem houses and correcting drawbacks to add value. This book is unique because the author shows how to add market value by improving the lifestyle of the buyer.
13. "Landlording on Auto-Pilot," by Mike Butler (John Wiley and Sons, Hoboken, NJ), $19.95, 190 pages. Both "old pro" residential landlords and beginner novice property managers will profit from this unusual book about how to profitably manage the tenants in your properties. "Your tenants are your employees" is the philosophy of the retired, no-nonsense cop author who shares his basic belief that most tenants would own their own homes if they had adequate income and good credit.
14. "Two Years to a Million in Real Estate," by Matthew A. Martinez (McGraw-Hill, New York), $21.95, 182 pages. This is the success story of an ex-dot-com employee who got tired of working long hours at a great job for 10 years and watching his fellow workers lose their jobs. He accidentally discovered real estate's market-value appreciation, leverage, tax savings, cash flow, reliability and freedom from a 9-to-5 workday. In the process, he became a multimillionaire, and he shows readers how they can have the same result.
15. "Home Buying for Dummies, Third Edition," by Eric Tyson and Ray Brown (Wiley Publishing, Inc., Indianapolis, IN), $21.99, 328 pages. Because of its ultra-complete coverage of virtually every home-buying topic, this 600,000-copy best-seller in prior editions is still the best "how to buy a home" book. The new edition adds extensive coverage of Internet resources for home buyers, where more than 75 percent of today's buyers begin their quest. This ultra-honest book even takes a few swipes at inept real estate agents who make the home-buying process more difficult than it needs to be.
10 best real estate books of 2006
--------------------------------------------------------------------------------
Explore art of negotiation, buying home with bad credit, timing market
Friday, December 08, 2006
Each week I read and review at least one new real estate book. At the end of each year, it is my honor to select from these 52 books the "top 10" real estate books. 2006 was an especially difficult year to select the best because there were so many new, high-quality realty books.
All of these excellent real estate books are available in stock or by special order at local bookstores, public libraries, and www.Amazon.com. Here are the 10 best real estate books of 2006, plus five Honorable Mentions:
Purchase Bob Bruss reports online.
1. "Trump-Style Negotiation," by George Ross (John Wiley and Sons, Hoboken, NJ), $24.95, 259 pages. This unique book offers insights into Donald J. Trump's big-thinking negotiation style, which leaves the contract details to his trusted adviser, George Ross. Only serious real estate buyers, sellers, real estate agents and investors will study this extremely well-written book that reveals negotiation tactics not found elsewhere, illustrated with many actual examples from Trump acquisitions.
2. "The Automatic Millionaire Homeowner," by David Bach (Broadway Books, New York), $19.95, 244 pages. If you could read only one real estate book, whether you are a renter considering a home purchase, a current homeowner, a seasoned realty investor or a real estate agent, this is the book for you because it shows how home ownership can lead to wealth. The book's two themes are (a) renters can become millionaires by investing in their first house or condo and (b) that residence can become the foundation for a better home or more investment property in future years.
3. "Buy Even Lower," by Scott Frank and Andy Heller (Kaplan Publishing Co., Chicago) $18.95, 238 pages. Aimed at real estate investors and real estate sales agents, this book, by two full-time corporate executives and part-time realty investors, shows how they buy single-family houses at targeted below-market prices and then either buy and hold, buy and flip, or (their favorite) buy and lease-purchase. The authors favor "ugly and awful" three-bedroom, two-bathroom houses in middle-income neighborhoods.
4. "Real Estate Debt Can Make You Rich," by Steve Dexter (McGraw-Hill, New York), $21.95, 156 pages. The two audiences for this book, which explains why real estate debt is good, are (a) home buyers and realty agents who want to understand the inner-workings of the mortgage industry and (b) investors who need to know how "good debt" can be created to maximize realty profits. The mortgage-broker author reveals how avoiding "inexperienced and inept loan hacks" can obtain the best mortgages to buy a home or investment property. The book includes the best compilation of real estate Web sites available.
5. "Bubbles, Booms, and Busts; Make Money in Any Real Estate Market," by Blanche Evans (McGraw-Hill, New York), $16.95, 167 pages. This extremely well-researched and up-to-date book explains the signals of local rising, falling or neutral local home sales markets, and how to profit in any situation if you take a long-term perspective on home sales. "Except for local economic shocks, like the collapse or exit of a major employer, home prices nationwide have not gone down since the Great Depression," the author reminds readers.
6. "Success as a Real Estate Agent for Dummies," by Dirk Zeller (Wiley Publishing Co., Indianapolis, IN), $21.99, 350 pages. Whether you are a new real estate agent, a longtime "old pro" agent or an individual thinking about becoming an agent, this basic book by a real estate "coach" explains what is involved in selling real estate for sales commissions, how to use sales time management profitably, and how to get started fast by contacting expired listings and "for sale by owners." The book includes an invaluable list of Web sites for realty agents plus the author's advice how to gain competitive advantages by obtaining a "slice of the market."
7. "Everything You Need to Know Before Buying a Co-Op, Condo, or Townhouse," by Ken Roth (AMACOM Publishing, New York), $18.95, 197 pages. The real estate attorney author shares his many legal and real-life personal experiences so readers don't make costly mistakes when buying into the unique lifestyle of these properties. Heavy emphasis is placed on the pros and cons of homeowner associations, including "condo commando" members who seek to take charge of the "mini-democracy" members.
8. "Who Says You Can't Buy a Home?" by David Reed (AMACOM Publishing, New York), $17.95, 182 pages. This mortgage-broker author is on the side of home buyers and real estate agents as he explains how mortgage lenders look at borrowers in this "tell all" book." "Anyone with steady income, no matter how bad their credit rating, or even with no credit, can find a mortgage to buy a home," the author reveals.
9. "Confessions of a Real Estate Entrepreneur," by James A. Randel (McGraw-Hill, New York), $29.95, 256 pages. This book's theme is "add value" to real estate, whether you invest in raw land, houses, run-down factory buildings with rezoning potential, or fixer-upper apartments and offices. The self-deprecating author shares his mistakes and his successes, along with his advice to invest with as little of your own cash as possible so profits can be maximized. Negotiation strategies are heavily emphasized throughout this unusual book.
10. "The Reverse Mortgage Advantage," by Warren Boroson (McGraw-Hill, New York), $21.95, 169 pages. Virtually all the key aspects of senior-citizen reverse mortgages are thoroughly explained in this detailed but easy-to-read book that emphasizes the potential pitfalls as well as the major benefits. The author shatters the reverse-mortgage myths, such as "the bank owns the house," the supposed high costs, and even the scary stories of early reverse mortgages, which are no longer possible.
HONORABLE MENTION:
11. "Trump: The Best Real Estate Advice I Ever Received," by Donald J. Trump (Thomas Nelson Publishers-Rutledge Hill Press, Nashville), $19.99, 273 pages. This is the most unusual real estate book of 2006 because it has 100 successful real estate investing, brokerage and marketing co-authors (including me) who contributed 100 chapters revealing the best realty advice ever received. What do all these realty entrepreneurs have in common (other than being very diverse individuals)? "Apprentice" Bill Ransic said it best: "Learn to recognize value."
12. "Find it, Fix it, Flip it!" by Michael Corbett (Plume Books-Penquin Group, New York), $15.00, 323 pages. This author, host of the TV Extra program "Mansions and Millionaires," created a technique of changing a fix-up home's lifestyle from dull routine to upscale, but without high renovation costs. The before-and-after photos are amazing. The "profit calculator chart" shows readers how to spot the potential profit by purchasing problem houses and correcting drawbacks to add value. This book is unique because the author shows how to add market value by improving the lifestyle of the buyer.
13. "Landlording on Auto-Pilot," by Mike Butler (John Wiley and Sons, Hoboken, NJ), $19.95, 190 pages. Both "old pro" residential landlords and beginner novice property managers will profit from this unusual book about how to profitably manage the tenants in your properties. "Your tenants are your employees" is the philosophy of the retired, no-nonsense cop author who shares his basic belief that most tenants would own their own homes if they had adequate income and good credit.
14. "Two Years to a Million in Real Estate," by Matthew A. Martinez (McGraw-Hill, New York), $21.95, 182 pages. This is the success story of an ex-dot-com employee who got tired of working long hours at a great job for 10 years and watching his fellow workers lose their jobs. He accidentally discovered real estate's market-value appreciation, leverage, tax savings, cash flow, reliability and freedom from a 9-to-5 workday. In the process, he became a multimillionaire, and he shows readers how they can have the same result.
15. "Home Buying for Dummies, Third Edition," by Eric Tyson and Ray Brown (Wiley Publishing, Inc., Indianapolis, IN), $21.99, 328 pages. Because of its ultra-complete coverage of virtually every home-buying topic, this 600,000-copy best-seller in prior editions is still the best "how to buy a home" book. The new edition adds extensive coverage of Internet resources for home buyers, where more than 75 percent of today's buyers begin their quest. This ultra-honest book even takes a few swipes at inept real estate agents who make the home-buying process more difficult than it needs to be.
Saturday, December 09, 2006
Foreclosures: Dealing in Denver's Foreclosed Homes Market
Cash in on foreclosures
Fast-rising default rates and widely available market data have made it easy to become a real estate closer. Here are some essential tips for rookies.
(Business 2.0 Magazine) -- Two years of interest rate hikes and flattening home prices have put the squeeze on homeowners who gorged on debt during the boom. Now they're struggling to keep up with ballooning payments or, worse, losing their homes to creditors.
In September alone, more than 112,000 U.S. homes fell into foreclosure - a 63 percent jump from September 2005, according to RealtyTrac.
Ideal market conditions, in other words, for a niche group of real estate investors -foreclosure gurus who deliver panicked homeowners fast cash in return for property acquired at enviable discounts. They used to go door-to-door and staple ads to telephone poles.
Top 10 foreclosure markets in the U.S.
Today, though, an array of new online services like PropertyShark.com and Foreclosures.com is making a once-shady business more respectable - and teaching a new class of investors how to turn hard times into sweet profits.
Take 37-year-old John Cordero. From 9 to 5, he's a broker for a financial-services firm in Burlingame, Calif. In his spare time? Relying on Foreclosures.com for good leads and guidance, Cordero has purchased and resold nine houses in some stage of foreclosure since 2003.
What Cordero calls a hobby is looking more and more like a dream career: Foreclosure sales have so far padded his net worth by $700,000.
Web sites haven't changed the basic rules of the game, of course; they've simply sped it up and invited more players.
Here's what several pros consider essential knowledge for rookies.
1. Find diamonds in the rough from the comfort of your desk.
Many sites update foreclosure listings as soon as they're available, and often include the amount owed and the estimated value. Some even mention code violations or complaints against previous owners.
"It's stunning," says Bill Rohlfing, who does about half his business of acquiring "shell" buildings in Harlem through foreclosure. "I'd be doing hours and hours more work if I didn't have PropertyShark." Other sites provide useful hand-holding for first-timers.
2. Time your attack.
Don't even consider attending public foreclosure auctions, which are typically controlled by banks and other big lenders. Small players get their best shot by scouting a property right after it goes into default, when there's a brief window to negotiate directly with the owner.
"The whole idea is to get the property before it goes to the [auction] table," Rohlfing says.
After spotting a default notice online - the first stage before the formal auction process - he goes into action.
"First I call the lawyer who represents the owner to ask if there is a way I can negotiate with the owner before it goes into auction," he says. The typical answer is a firm no, but Rohlfing takes that as his cue to try to do it anyway, preferably in person.
3. Make the owner your partner.
Currying favor with the owner is another way a small player can get the necessary leverage to strike a quick deal. Cordero, for instance, often promises to solve the owner's immediate problem by covering enough mortgage back payments to get the loan out of default.
Then, in exchange for the deed to the property, he provides the owner with an apartment, rent-free, while he refurbishes the house. When he sells the home, Cordero cuts the owner a check for a portion of the profit - usually 10 to 20 percent.
Fast-rising default rates and widely available market data have made it easy to become a real estate closer. Here are some essential tips for rookies.
(Business 2.0 Magazine) -- Two years of interest rate hikes and flattening home prices have put the squeeze on homeowners who gorged on debt during the boom. Now they're struggling to keep up with ballooning payments or, worse, losing their homes to creditors.
In September alone, more than 112,000 U.S. homes fell into foreclosure - a 63 percent jump from September 2005, according to RealtyTrac.
Ideal market conditions, in other words, for a niche group of real estate investors -foreclosure gurus who deliver panicked homeowners fast cash in return for property acquired at enviable discounts. They used to go door-to-door and staple ads to telephone poles.
Top 10 foreclosure markets in the U.S.
Today, though, an array of new online services like PropertyShark.com and Foreclosures.com is making a once-shady business more respectable - and teaching a new class of investors how to turn hard times into sweet profits.
Take 37-year-old John Cordero. From 9 to 5, he's a broker for a financial-services firm in Burlingame, Calif. In his spare time? Relying on Foreclosures.com for good leads and guidance, Cordero has purchased and resold nine houses in some stage of foreclosure since 2003.
What Cordero calls a hobby is looking more and more like a dream career: Foreclosure sales have so far padded his net worth by $700,000.
Web sites haven't changed the basic rules of the game, of course; they've simply sped it up and invited more players.
Here's what several pros consider essential knowledge for rookies.
1. Find diamonds in the rough from the comfort of your desk.
Many sites update foreclosure listings as soon as they're available, and often include the amount owed and the estimated value. Some even mention code violations or complaints against previous owners.
"It's stunning," says Bill Rohlfing, who does about half his business of acquiring "shell" buildings in Harlem through foreclosure. "I'd be doing hours and hours more work if I didn't have PropertyShark." Other sites provide useful hand-holding for first-timers.
2. Time your attack.
Don't even consider attending public foreclosure auctions, which are typically controlled by banks and other big lenders. Small players get their best shot by scouting a property right after it goes into default, when there's a brief window to negotiate directly with the owner.
"The whole idea is to get the property before it goes to the [auction] table," Rohlfing says.
After spotting a default notice online - the first stage before the formal auction process - he goes into action.
"First I call the lawyer who represents the owner to ask if there is a way I can negotiate with the owner before it goes into auction," he says. The typical answer is a firm no, but Rohlfing takes that as his cue to try to do it anyway, preferably in person.
3. Make the owner your partner.
Currying favor with the owner is another way a small player can get the necessary leverage to strike a quick deal. Cordero, for instance, often promises to solve the owner's immediate problem by covering enough mortgage back payments to get the loan out of default.
Then, in exchange for the deed to the property, he provides the owner with an apartment, rent-free, while he refurbishes the house. When he sells the home, Cordero cuts the owner a check for a portion of the profit - usually 10 to 20 percent.
Friday, December 08, 2006
Hey Denver - Are You Ready for This? Zillow Listing Service!
From the ZILLOW BLOG:
We're Opening It Up!
By Lloyd Frink President
Categories: Real Estate , Real Estate Industry , Zestimate , Zillow
With those four words -- "We're Opening It Up!" -- I am pleased, proud, eager and bursting with excitement to announce that we just launched a major upgrade to our site. Ready? We now offer the ability for real estate agents and homeowners to plant virtual "For Sale" signs on Zillow.com. Since we launched in February 2006, this has been one of our most-requested features and now, agents and owners can post homes for sale on Zillow, for free. Our easy posting tool allows photos to be uploaded, space for home descriptions to be written -- including "What I love about my home" -- and room for ever-important neighborhood commentary. Agents who post homes for sale can publish their own contact information, upload a photo of themselves, and add links to listings on their own Web sites.
Another feature that we've just launched -- and I must say this feature has planted a permanent smile on everyone's faces around here since it was conceived -- is "Make Me Move™". MMM, as we affectionately call it, is our twist on what it means to be "For Sale." Here's the concept: Think about a price that would entice you to hand over the keys to your home and move. We think it's a unique and creative way for homeowners to test the waters and gauge interest in their home, even if it's not actually on the market. Interested home shoppers can then contact them via an e-mail "anonymizer" to get the conversation started. We're excited to see what happens by facilitating this type of contact for the first time. We invite homeowners to post a Make Me Move price on their home.
In geek speak, Zillow is moving from "read-only" mode to "read-write". When we launched in February, our goal was to open up the deep repository of information about every home in America — which had been collecting cobwebs in county courthouses for decades -- and then layering our Zestimates on top. Today, we begin our second phase, which means owners and real estate professionals can "write to the site."
And last, we've also launched what we call the Real Estate Wiki. We've seeded the wiki with 100+ articles to build a strong foundation, and have opened that up to you, the real estate community, to improve and expand. We're eager to see what you add, edit and create.
We don't know how many For Sale postings or Make Me Move postings we'll get, but we'll be watching and you can, too. In this world of opening up the Web, we've added a "snapshot" counter on the home page so we can all watch how many postings and MMM's we get. Without a doubt, this is going to be very interesting and we're ready for the ride. As always, we're eager for your feedback.
Update (12/7, 4am): Our apologies, but we're experiencing issues with our website related to the release of the new version of the site. We're working hard on remedying the situation and we'll keep you updated.
Update (12/7 4:45am): OK, we're up and the site is stable. Go post your MMM!
We're Opening It Up!
By Lloyd Frink President
Categories: Real Estate , Real Estate Industry , Zestimate , Zillow
With those four words -- "We're Opening It Up!" -- I am pleased, proud, eager and bursting with excitement to announce that we just launched a major upgrade to our site. Ready? We now offer the ability for real estate agents and homeowners to plant virtual "For Sale" signs on Zillow.com. Since we launched in February 2006, this has been one of our most-requested features and now, agents and owners can post homes for sale on Zillow, for free. Our easy posting tool allows photos to be uploaded, space for home descriptions to be written -- including "What I love about my home" -- and room for ever-important neighborhood commentary. Agents who post homes for sale can publish their own contact information, upload a photo of themselves, and add links to listings on their own Web sites.
Another feature that we've just launched -- and I must say this feature has planted a permanent smile on everyone's faces around here since it was conceived -- is "Make Me Move™". MMM, as we affectionately call it, is our twist on what it means to be "For Sale." Here's the concept: Think about a price that would entice you to hand over the keys to your home and move. We think it's a unique and creative way for homeowners to test the waters and gauge interest in their home, even if it's not actually on the market. Interested home shoppers can then contact them via an e-mail "anonymizer" to get the conversation started. We're excited to see what happens by facilitating this type of contact for the first time. We invite homeowners to post a Make Me Move price on their home.
In geek speak, Zillow is moving from "read-only" mode to "read-write". When we launched in February, our goal was to open up the deep repository of information about every home in America — which had been collecting cobwebs in county courthouses for decades -- and then layering our Zestimates on top. Today, we begin our second phase, which means owners and real estate professionals can "write to the site."
And last, we've also launched what we call the Real Estate Wiki. We've seeded the wiki with 100+ articles to build a strong foundation, and have opened that up to you, the real estate community, to improve and expand. We're eager to see what you add, edit and create.
We don't know how many For Sale postings or Make Me Move postings we'll get, but we'll be watching and you can, too. In this world of opening up the Web, we've added a "snapshot" counter on the home page so we can all watch how many postings and MMM's we get. Without a doubt, this is going to be very interesting and we're ready for the ride. As always, we're eager for your feedback.
Update (12/7, 4am): Our apologies, but we're experiencing issues with our website related to the release of the new version of the site. We're working hard on remedying the situation and we'll keep you updated.
Update (12/7 4:45am): OK, we're up and the site is stable. Go post your MMM!
Wednesday, December 06, 2006
Denver Home Buyers: Want a Fixer-Upper?
From CNN/Money - A group of lessons for those in the Denver Real Estate Market!
Getting started
Erika and Greg Tansey couldn't afford the house they really wanted in Lake Oswego, an upscale suburb of Portland, Oregon, so they opted for Plan B: buying an outdated, dilapidated Cape and remodeling it.
"The bathroom was so small that your knees hit the tub when you used the toilet. The hallways were narrow and dark. And the garage was basically falling over," says Erika.
What the house lacked in charm it made up for in location and a terrific school district.
"Originally, we didn't think it'd be that big a project," says Erika. "We ended up gutting the house."
Erika and Greg started demolition in September 2005, with more significant plans than they'd first imagined: raising the roof, putting in an addition, doubling the square footage and reconfiguring the floor plan. Erika, 34, a freelance marketing consultant, and Greg, 35, a venture capitalist, budgeted $200,000 for their extreme home makeover.
But the project took six months longer than expected, cost $80,000 more than planned and finished just as the bubble began deflating. By the time they finished this past August, they were exhausted but eager to share the lessons they'd learned.
Lesson 1
The words "under" and "budget" do not coexist
The first step is usually to hire a general contractor (G.C.) to create a budget, shop for materials and hire subcontractors. Doing this yourself is a full-time job but can save as much as 20 percent of the bill. The Tanseys, with family friend and G.C. Dave Fahlman on speed dial, dared to do it. They expected to save $50,000, which they could put back into the house.
But, says Erika, "Some of our estimates were way off." Upgrades were the biggest culprit. They budgeted $7,000 for siding but found they preferred cedar shingles, which cost five times that. They compromised on cedar siding, which still rang up at $21,000. Other last-minute upgrades, such as mahogany decking, added to budget woes.
It's crucial to have room in the budget for errors and uncertainties. Even a seasoned G.C. can't know exactly what's needed until the walls come down or know how a natural disaster will affect wood prices. "Add 10 percent to your total budget," says Carl Heldman, author of Be Your Own House Contractor. "I promise you'll spend every penny."
Lesson 2
You can get a better price
The Tanseys' diligence in pricing out subcontractors and materials saved thousands. Quoted $7,000 to cut down a tree, Erika called seven more services before she got a $4,000 bid. Interior-trim painting estimates varied from $5,000 to $15,000. She found a landscaper for $11,000 when another bid $35,000. It pays to get three quotes on any major job.
Don't, however, make money the sole basis of your decision. You want to be confident - via references and track record - that the person will get the job done right in a reasonable amount of time.
Lesson 3
Don't count on hosting New Year's Eve dinner
When the Tanseys' windows didn't make it onto the back of a delivery truck, it set off a chain reaction. Without windows, the siding couldn't be put on. Without siding, no insulation could be installed, which meant no drywall, trim, light fixtures or flooring. One snag resulted in a three-week delay.
Torrential rain flooded the basement. The framer came down with pneumonia. The flooring guy shot a nail into a pipe, triggering a leak. Because the Tanseys weren't married to deadlines they were able to cope with the delays. Although they hoped to be in by April, they had signed a month-to-month lease on the apartment they were renting.
Some delays will be beyond your control. If you're trying to have the house finished before the birth of your triplets, you're setting yourself up for a bad case of acid reflux.
Lesson 4
Even Bob Vila has his limits
Erika dealt with subcontractors, kept track of materials and cared for their infant daughter, Claire. Greg spent his weekends and evenings at the house. "The poor guy works all day then goes to work again," said Erika during construction.
You can save a lot rolling up your sleeves but there's a price to pay. "The three key elements of a remodel are cost, quality and time - and they could conflict," says G.C. and family friend Dave Fahlman. "You are constantly having to pick which is more important."
Greg helped with the demolition work, the framing and the electrical installation. He planned to tackle the tiling as well but after months of 16-hour days, he thought better of it and hired three workers. "It was the best $12,000 we've ever spent," says Erika.
The finish line
The final remodeling cost, with landscaping, came to $280,000 for a total of $726,000. "We had a crazy year but we love our house," says Erika. And they've made money, at least on paper. Based on comparables, local real estate agent Trista Nelson values the house at $980,000.
We wouldn't have been able to afford a house nearly so nice if we hadn't remodeled," says Greg. He and Erika are now planning their next project: a relaxing family vacation.
Getting started
Erika and Greg Tansey couldn't afford the house they really wanted in Lake Oswego, an upscale suburb of Portland, Oregon, so they opted for Plan B: buying an outdated, dilapidated Cape and remodeling it.
"The bathroom was so small that your knees hit the tub when you used the toilet. The hallways were narrow and dark. And the garage was basically falling over," says Erika.
What the house lacked in charm it made up for in location and a terrific school district.
"Originally, we didn't think it'd be that big a project," says Erika. "We ended up gutting the house."
Erika and Greg started demolition in September 2005, with more significant plans than they'd first imagined: raising the roof, putting in an addition, doubling the square footage and reconfiguring the floor plan. Erika, 34, a freelance marketing consultant, and Greg, 35, a venture capitalist, budgeted $200,000 for their extreme home makeover.
But the project took six months longer than expected, cost $80,000 more than planned and finished just as the bubble began deflating. By the time they finished this past August, they were exhausted but eager to share the lessons they'd learned.
Lesson 1
The words "under" and "budget" do not coexist
The first step is usually to hire a general contractor (G.C.) to create a budget, shop for materials and hire subcontractors. Doing this yourself is a full-time job but can save as much as 20 percent of the bill. The Tanseys, with family friend and G.C. Dave Fahlman on speed dial, dared to do it. They expected to save $50,000, which they could put back into the house.
But, says Erika, "Some of our estimates were way off." Upgrades were the biggest culprit. They budgeted $7,000 for siding but found they preferred cedar shingles, which cost five times that. They compromised on cedar siding, which still rang up at $21,000. Other last-minute upgrades, such as mahogany decking, added to budget woes.
It's crucial to have room in the budget for errors and uncertainties. Even a seasoned G.C. can't know exactly what's needed until the walls come down or know how a natural disaster will affect wood prices. "Add 10 percent to your total budget," says Carl Heldman, author of Be Your Own House Contractor. "I promise you'll spend every penny."
Lesson 2
You can get a better price
The Tanseys' diligence in pricing out subcontractors and materials saved thousands. Quoted $7,000 to cut down a tree, Erika called seven more services before she got a $4,000 bid. Interior-trim painting estimates varied from $5,000 to $15,000. She found a landscaper for $11,000 when another bid $35,000. It pays to get three quotes on any major job.
Don't, however, make money the sole basis of your decision. You want to be confident - via references and track record - that the person will get the job done right in a reasonable amount of time.
Lesson 3
Don't count on hosting New Year's Eve dinner
When the Tanseys' windows didn't make it onto the back of a delivery truck, it set off a chain reaction. Without windows, the siding couldn't be put on. Without siding, no insulation could be installed, which meant no drywall, trim, light fixtures or flooring. One snag resulted in a three-week delay.
Torrential rain flooded the basement. The framer came down with pneumonia. The flooring guy shot a nail into a pipe, triggering a leak. Because the Tanseys weren't married to deadlines they were able to cope with the delays. Although they hoped to be in by April, they had signed a month-to-month lease on the apartment they were renting.
Some delays will be beyond your control. If you're trying to have the house finished before the birth of your triplets, you're setting yourself up for a bad case of acid reflux.
Lesson 4
Even Bob Vila has his limits
Erika dealt with subcontractors, kept track of materials and cared for their infant daughter, Claire. Greg spent his weekends and evenings at the house. "The poor guy works all day then goes to work again," said Erika during construction.
You can save a lot rolling up your sleeves but there's a price to pay. "The three key elements of a remodel are cost, quality and time - and they could conflict," says G.C. and family friend Dave Fahlman. "You are constantly having to pick which is more important."
Greg helped with the demolition work, the framing and the electrical installation. He planned to tackle the tiling as well but after months of 16-hour days, he thought better of it and hired three workers. "It was the best $12,000 we've ever spent," says Erika.
The finish line
The final remodeling cost, with landscaping, came to $280,000 for a total of $726,000. "We had a crazy year but we love our house," says Erika. And they've made money, at least on paper. Based on comparables, local real estate agent Trista Nelson values the house at $980,000.
We wouldn't have been able to afford a house nearly so nice if we hadn't remodeled," says Greg. He and Erika are now planning their next project: a relaxing family vacation.
Sunday, December 03, 2006
Are Your Emotions Playing a Role in the Sale of Your Denver Home?
For Sale, By the Owner's Ego
Feelings Often Play as Big A Role as Logic in Setting Prices, Research Finds
By Kirstin Downey
Washington Post Staff Writer
Saturday, November 4, 2006; Page F01
Sam LeBlanc tried to cushion the blow when he gave his wife, Karyn, the bad news. He told her to take a breath and think it over, because he knew that what he was telling her would hurt.
Her condominium isn't worth nearly as much as she thought.
"I was a little crushed," Karyn recalled.
People may think they make cold, hard decisions in financial transactions such as buying and selling a house. Increasingly, though, research shows that emotions play as big a role as intellect.
For Karyn, for example, the condo she bought in the District's Palisades neighborhood in 2002 was the first big, independent purchase she had ever made. She proudly added many special touches, including a closet organizing system she thought would be the envy of any woman. But she and Sam got married, had a baby and decided to sell the condo. Over the past few months, Sam did a lot of market research and decided they should ask $269,000.
The number came as a blow to Karyn, because she knew similar units, including some she thinks weren't as nice, sold last year for $280,000.
"You want to believe it's worth a lot more because you've invested your time and energy on it," Karyn said.
Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market. That's one reason for the phenomenon known as "sticky prices" -- home sellers who won't cut their demands enough to make a deal. It helps explain why the unsold inventory of homes has risen so high, and why, despite this rise, home prices in the Washington area have fallen only slightly. There were 24,741 homes for sale in September in Washington and the close-in suburbs, up from 13,950 a year earlier.
Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays. New imaging technology, meanwhile, is allowing scientists to peer inside people's brains while they wrestle with financial decisions.
These studies have illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today.
In other words, people will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.
"There's a whole emotional processing system that goes on in the brain that's largely beyond our control," said Kevin McCabe, a professor of economics, law and neuroscience at George Mason University. "The general view is that our emotions control us, and not vice versa."
Little of this research has been applied directly to real estate, but neuroeconomists say the principles would logically apply to housing, too. For example, much work has been done on the concept of "loss aversion," which shows that people tend to deny reality when something they own, such as stock, declines in value. They will keep holding that stock, confident the price will rise again if they wait long enough.
They do the same with their homes, maintaining the asking price even at a level that makes no sense, economists said. Similarly, home sellers become attached to the prices their neighbors received at the top of the market rather than current prices, and they become reluctant to sell unless they get that higher price.
"It's classic loss aversion," said Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School in New York. "You could do it, but you don't want to. You don't want to realize the loss. It leads to housing markets that don't function very well. You've got a lot of houses on the market and they aren't selling."
Mayer said that people allow their wishful thinking to overcome realistic perceptions because they don't want to view themselves as having made a mistake.
"People should recognize that what they do won't change the housing market," he said. "They could wish their house could sell for more money but it doesn't mean it will do so."
David Laibson, who teaches psychology and economics at Harvard University, said a common error people make is believing that homes can't drop in value below what they paid for them, and, in particular, that they can't fall below their mortgage amounts.
"There seems to be a psychological resistance to taking losses on the sale of a house," Laibson said. "People think they'll make money on it. . . . That logic worked for a long time, and now anyone who bet on that logic is being burned."
Generally speaking, according to the evolving body of neuroeconomic research, people logically make rather simple dollars-and-cents analyses when they buy small items, but become more emotional around large decisions, particularly those that affect their futures.
"For decisions we make frequently, like buying eggs or which route to take driving to work, we're pretty rational," Laibson said. In areas that involve choices people make rarely, they have to extrapolate based on what they have heard or rely on limited previous experience. When people sell a house, they may have done so only once or twice before, he said. That means they may experience anguish similar to what people feel when they decide whom to marry or whether and when to retire.
Some sellers are able to be more dispassionate. Six months ago, mortgage broker Steven Waller of Stephens City, Va., bought three dilapidated townhouses in nearby Front Royal for about $100,000 each. They had been used as rentals; he spent about $20,000 refurbishing each. Other similar units are for sale by their owners, who live in them, for $165,000 to $200,000, but Waller is flipping his properties by pricing them at $149,000 each. He said they have been appraised at about $180,000.
"I'm making a profit, that's all that matters," Waller said. "I have no emotional attachment to it. You can stay ahead of the game if you price at where they will sell rather than sit on them for a year."
Fairfax resident Sharon Stapleton, in contrast, knew she had a "major ego involvement" when her family set out to sell their vacation home on Lake George in upstate New York. They held out for nine months, and three years ago, they finally got their price. Recently, however, she sought to do the same with the home she owns in Fairfax County. Stapleton has wondered if it is overpriced, but she believes the house, on a forested lot, is unique in a highly urbanized area, and so she has kept the price at $795,000. She's wondering now if she has been wise.
"I just need time to emotionally deal with the price drop," she wrote in an e-mail. "EGO. Not greed."
The difference in the ways that real estate investors vs. ordinary home sellers are reacting to the market can also be seen in national trends. Last week, the National Association of Realtors reported that nationwide, the median price of existing homes, sold mostly by people who live in them, fell 2.2 percent in September compared with September 2005, dropping to $220,000 from $225,000. The median is the point at which half the homes cost more and half cost less.
The next day, the Commerce Department reported that home builders -- in business to make a profit -- had more aggressively cut their prices. The price of new houses declined 9.7 percent in September, compared with the same month a year earlier. Analysts said that cutting prices helped boost sales after a slow summer.
Neuroeconomic research may provide buyers and sellers with some clues about how to psych out the market themselves.
Sellers, neuroeconomist McCabe suggests, might need to realize that no matter how passionately they wish things were different, prices have fallen and they need to accept that. They can hold on and wait, but may actually lose more money by making payments on a home in a place they no longer want to live -- in effect, throwing good money after bad.
Buyers, he said, need to be aware that they are dealing not just with a house but also with a seller wrestling with his ego. Sometimes it might be smarter to let the poor fellow keep his price, but ask for other concessions that might actually be more valuable. A new roof, new appliances or substantial assistance toward the closing costs all have material value, but they allow the seller the dignity of maintaining the price at a level that leaves him standing tall in his neighbors' eyes.
"Haggle less over price and more over other stuff," McCabe said the research indicates. "Change the bargaining so you still get the deal you want."
Of course, real estate agents say they haven't needed research laboratories to teach them about buyer and seller behavior.
"You always view your house as more valuable than the numbers will justify," said Owen Heine, a real estate with Sager Real Estate in Strasburg, Va. "Every person views his house as a castle. It's human nature to love what you have."
Feelings Often Play as Big A Role as Logic in Setting Prices, Research Finds
By Kirstin Downey
Washington Post Staff Writer
Saturday, November 4, 2006; Page F01
Sam LeBlanc tried to cushion the blow when he gave his wife, Karyn, the bad news. He told her to take a breath and think it over, because he knew that what he was telling her would hurt.
Her condominium isn't worth nearly as much as she thought.
"I was a little crushed," Karyn recalled.
People may think they make cold, hard decisions in financial transactions such as buying and selling a house. Increasingly, though, research shows that emotions play as big a role as intellect.
For Karyn, for example, the condo she bought in the District's Palisades neighborhood in 2002 was the first big, independent purchase she had ever made. She proudly added many special touches, including a closet organizing system she thought would be the envy of any woman. But she and Sam got married, had a baby and decided to sell the condo. Over the past few months, Sam did a lot of market research and decided they should ask $269,000.
The number came as a blow to Karyn, because she knew similar units, including some she thinks weren't as nice, sold last year for $280,000.
"You want to believe it's worth a lot more because you've invested your time and energy on it," Karyn said.
Evidence is mounting that people set prices, particularly for housing, as much on ego and self-image as on an objective review of the market. That's one reason for the phenomenon known as "sticky prices" -- home sellers who won't cut their demands enough to make a deal. It helps explain why the unsold inventory of homes has risen so high, and why, despite this rise, home prices in the Washington area have fallen only slightly. There were 24,741 homes for sale in September in Washington and the close-in suburbs, up from 13,950 a year earlier.
Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays. New imaging technology, meanwhile, is allowing scientists to peer inside people's brains while they wrestle with financial decisions.
These studies have illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today.
In other words, people will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.
"There's a whole emotional processing system that goes on in the brain that's largely beyond our control," said Kevin McCabe, a professor of economics, law and neuroscience at George Mason University. "The general view is that our emotions control us, and not vice versa."
Little of this research has been applied directly to real estate, but neuroeconomists say the principles would logically apply to housing, too. For example, much work has been done on the concept of "loss aversion," which shows that people tend to deny reality when something they own, such as stock, declines in value. They will keep holding that stock, confident the price will rise again if they wait long enough.
They do the same with their homes, maintaining the asking price even at a level that makes no sense, economists said. Similarly, home sellers become attached to the prices their neighbors received at the top of the market rather than current prices, and they become reluctant to sell unless they get that higher price.
"It's classic loss aversion," said Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School in New York. "You could do it, but you don't want to. You don't want to realize the loss. It leads to housing markets that don't function very well. You've got a lot of houses on the market and they aren't selling."
Mayer said that people allow their wishful thinking to overcome realistic perceptions because they don't want to view themselves as having made a mistake.
"People should recognize that what they do won't change the housing market," he said. "They could wish their house could sell for more money but it doesn't mean it will do so."
David Laibson, who teaches psychology and economics at Harvard University, said a common error people make is believing that homes can't drop in value below what they paid for them, and, in particular, that they can't fall below their mortgage amounts.
"There seems to be a psychological resistance to taking losses on the sale of a house," Laibson said. "People think they'll make money on it. . . . That logic worked for a long time, and now anyone who bet on that logic is being burned."
Generally speaking, according to the evolving body of neuroeconomic research, people logically make rather simple dollars-and-cents analyses when they buy small items, but become more emotional around large decisions, particularly those that affect their futures.
"For decisions we make frequently, like buying eggs or which route to take driving to work, we're pretty rational," Laibson said. In areas that involve choices people make rarely, they have to extrapolate based on what they have heard or rely on limited previous experience. When people sell a house, they may have done so only once or twice before, he said. That means they may experience anguish similar to what people feel when they decide whom to marry or whether and when to retire.
Some sellers are able to be more dispassionate. Six months ago, mortgage broker Steven Waller of Stephens City, Va., bought three dilapidated townhouses in nearby Front Royal for about $100,000 each. They had been used as rentals; he spent about $20,000 refurbishing each. Other similar units are for sale by their owners, who live in them, for $165,000 to $200,000, but Waller is flipping his properties by pricing them at $149,000 each. He said they have been appraised at about $180,000.
"I'm making a profit, that's all that matters," Waller said. "I have no emotional attachment to it. You can stay ahead of the game if you price at where they will sell rather than sit on them for a year."
Fairfax resident Sharon Stapleton, in contrast, knew she had a "major ego involvement" when her family set out to sell their vacation home on Lake George in upstate New York. They held out for nine months, and three years ago, they finally got their price. Recently, however, she sought to do the same with the home she owns in Fairfax County. Stapleton has wondered if it is overpriced, but she believes the house, on a forested lot, is unique in a highly urbanized area, and so she has kept the price at $795,000. She's wondering now if she has been wise.
"I just need time to emotionally deal with the price drop," she wrote in an e-mail. "EGO. Not greed."
The difference in the ways that real estate investors vs. ordinary home sellers are reacting to the market can also be seen in national trends. Last week, the National Association of Realtors reported that nationwide, the median price of existing homes, sold mostly by people who live in them, fell 2.2 percent in September compared with September 2005, dropping to $220,000 from $225,000. The median is the point at which half the homes cost more and half cost less.
The next day, the Commerce Department reported that home builders -- in business to make a profit -- had more aggressively cut their prices. The price of new houses declined 9.7 percent in September, compared with the same month a year earlier. Analysts said that cutting prices helped boost sales after a slow summer.
Neuroeconomic research may provide buyers and sellers with some clues about how to psych out the market themselves.
Sellers, neuroeconomist McCabe suggests, might need to realize that no matter how passionately they wish things were different, prices have fallen and they need to accept that. They can hold on and wait, but may actually lose more money by making payments on a home in a place they no longer want to live -- in effect, throwing good money after bad.
Buyers, he said, need to be aware that they are dealing not just with a house but also with a seller wrestling with his ego. Sometimes it might be smarter to let the poor fellow keep his price, but ask for other concessions that might actually be more valuable. A new roof, new appliances or substantial assistance toward the closing costs all have material value, but they allow the seller the dignity of maintaining the price at a level that leaves him standing tall in his neighbors' eyes.
"Haggle less over price and more over other stuff," McCabe said the research indicates. "Change the bargaining so you still get the deal you want."
Of course, real estate agents say they haven't needed research laboratories to teach them about buyer and seller behavior.
"You always view your house as more valuable than the numbers will justify," said Owen Heine, a real estate with Sager Real Estate in Strasburg, Va. "Every person views his house as a castle. It's human nature to love what you have."
Friday, December 01, 2006
Real Estate Dreams Dashed, Debts Mount
Giant Scam? Real Estate Dreams Dashed, Debts Mount
Investing Club Turns into Nightmare Idea
It seemed like an answer to a prayer for people facing hard times.
The sales pitch sounded too good to be true, and it was.
One of the largest mortgage frauds in living memory began with a small-town lay minister and her daughter, a hairdresser. They gathered friends, neighbors and clients, and pitched a get-rich-quick scheme tinted with religion and targeted specifically at African-Americans.
"'This is what the white man has done to get ahead their whole life.' …. That was their exact words," said Barry Moore, a resident of Virginia who found himself the unwitting owner of two houses in Indiana.
Federal authorities are still investigating, but it appears the fraud ensnared more than 100 people, as many as 400 properties and as much as $80 million.
"Fannie Mae … believed it was the mother of all mortgage fraud," said Robin Pickett, an Indiana real estate agent working with the fraud's victims.
Mortgage fraud has become an "epidemic," according to an FBI report issued last year. According to the report, the value of total fraud ballooned from about $400 million in 2004 to more than $1 billion in 2005 — and is on pace this year to go even higher.
Outline of a Fraud
Beulah Penn was a lay minister in Martinsville, Va. Her daughter, Sharon, worked in a beauty salon in the town, which had lost thousands of factory jobs in recent years. Bealuh's son, Robert Penn, was a successful property speculator who lived — literally — on Easy Street, in Indianapolis. One evening in 2005, Beulah Penn and her daughter gathered friends and neighbors, and Robert Penn came into town for a dinner that Moore said felt "like a festive celebration."
According to investors, the Penns offered the opportunity to join what they called a "real estate investment group" as a blessing from God. They emphasized that no individual would bear responsibility. Instead, each would have a stake in a portfolio of properties that one of Robert Penn's companies companies. When the properties were eventually sold, the profit would be returned to the members. And according to the group, all that Robert Penn asked for was their Social Security numbers so that he could verify their credit ratings.
Many of the investors were reluctant to join, and did so only after months of persistent urging. Once they had been persuaded, the next stage required signing some documents. And on this point, Beulah and Sharon Penn always seemed to be in a hurry, investors said.
"You get over there and you get to signing, everything was highlighted, where you need to initial it, initial here, sign here, initial here, sign here, date here, put yesterday's date on here or what not," Moore recalled. "Literally standing over me, flipping the pages for me."
The investors expected the next they would hear of their investment would be a check in the mail. It wasn't until months later that they realized they had been swindled, they said.
Kelvin Thompson went to his credit union for a small loan, "a little extra money for the holidays," he said, and was surprised to find that five Indiana properties were registered in his name. He owed nearly $1 million on the mortgages.
The victims of the alleged fraud found their credit ratings, in some cases nearly perfect before they signed those documents, ruined. Small or simple transactions had suddenly become arduous.
Unexpected Support
Robin and Tony Pickett, real estate agents in Indianapolis, discovered a large number of big mortgages registered in the names of people living outside Indiana. They became suspicious.
"Once we saw the values that they had been sold for we immediately thought there was something a little strange about this," Tony Pickett said. "So the next day I went over to the properties and did an assessment myself. And what we found was most of them were abandoned. Most of them were in total disrepair."
Robert Penn had secured appraisals of the properties, which the Picketts said were as much as four times their value. One of the five properties in Thompson's name was worth only $29,000, but the mortgage issued was for $139,000.
According to the Pickets, Robert Penn pocketed huge sums of money by purchasing dilapidated homes at market value, while arranging mortgages of far greater value in the names of his investors. The difference between the two became his profit.
In June, New York-based Countrywide Home Loans Inc., the nation's largest home lender, filed a lawsuit in Indiana's Marion Superior Court, charging Robert Penn with masterminding the fraud.
When Beulah Penn was deposed by another lender involved in the case earlier this week, she decided to invoke her right to silence, even refusing to answer when asked if Robert Penn was her son.
"Nightline" has learned that federal investigators are now interviewing members of other investment groups started by Robert Penn in Michigan and Indiana. Sharon Penn has closed her hair salon.
Copyright © 2006 ABC News Internet Ventures
Investing Club Turns into Nightmare Idea
It seemed like an answer to a prayer for people facing hard times.
The sales pitch sounded too good to be true, and it was.
One of the largest mortgage frauds in living memory began with a small-town lay minister and her daughter, a hairdresser. They gathered friends, neighbors and clients, and pitched a get-rich-quick scheme tinted with religion and targeted specifically at African-Americans.
"'This is what the white man has done to get ahead their whole life.' …. That was their exact words," said Barry Moore, a resident of Virginia who found himself the unwitting owner of two houses in Indiana.
Federal authorities are still investigating, but it appears the fraud ensnared more than 100 people, as many as 400 properties and as much as $80 million.
"Fannie Mae … believed it was the mother of all mortgage fraud," said Robin Pickett, an Indiana real estate agent working with the fraud's victims.
Mortgage fraud has become an "epidemic," according to an FBI report issued last year. According to the report, the value of total fraud ballooned from about $400 million in 2004 to more than $1 billion in 2005 — and is on pace this year to go even higher.
Outline of a Fraud
Beulah Penn was a lay minister in Martinsville, Va. Her daughter, Sharon, worked in a beauty salon in the town, which had lost thousands of factory jobs in recent years. Bealuh's son, Robert Penn, was a successful property speculator who lived — literally — on Easy Street, in Indianapolis. One evening in 2005, Beulah Penn and her daughter gathered friends and neighbors, and Robert Penn came into town for a dinner that Moore said felt "like a festive celebration."
According to investors, the Penns offered the opportunity to join what they called a "real estate investment group" as a blessing from God. They emphasized that no individual would bear responsibility. Instead, each would have a stake in a portfolio of properties that one of Robert Penn's companies companies. When the properties were eventually sold, the profit would be returned to the members. And according to the group, all that Robert Penn asked for was their Social Security numbers so that he could verify their credit ratings.
Many of the investors were reluctant to join, and did so only after months of persistent urging. Once they had been persuaded, the next stage required signing some documents. And on this point, Beulah and Sharon Penn always seemed to be in a hurry, investors said.
"You get over there and you get to signing, everything was highlighted, where you need to initial it, initial here, sign here, initial here, sign here, date here, put yesterday's date on here or what not," Moore recalled. "Literally standing over me, flipping the pages for me."
The investors expected the next they would hear of their investment would be a check in the mail. It wasn't until months later that they realized they had been swindled, they said.
Kelvin Thompson went to his credit union for a small loan, "a little extra money for the holidays," he said, and was surprised to find that five Indiana properties were registered in his name. He owed nearly $1 million on the mortgages.
The victims of the alleged fraud found their credit ratings, in some cases nearly perfect before they signed those documents, ruined. Small or simple transactions had suddenly become arduous.
Unexpected Support
Robin and Tony Pickett, real estate agents in Indianapolis, discovered a large number of big mortgages registered in the names of people living outside Indiana. They became suspicious.
"Once we saw the values that they had been sold for we immediately thought there was something a little strange about this," Tony Pickett said. "So the next day I went over to the properties and did an assessment myself. And what we found was most of them were abandoned. Most of them were in total disrepair."
Robert Penn had secured appraisals of the properties, which the Picketts said were as much as four times their value. One of the five properties in Thompson's name was worth only $29,000, but the mortgage issued was for $139,000.
According to the Pickets, Robert Penn pocketed huge sums of money by purchasing dilapidated homes at market value, while arranging mortgages of far greater value in the names of his investors. The difference between the two became his profit.
In June, New York-based Countrywide Home Loans Inc., the nation's largest home lender, filed a lawsuit in Indiana's Marion Superior Court, charging Robert Penn with masterminding the fraud.
When Beulah Penn was deposed by another lender involved in the case earlier this week, she decided to invoke her right to silence, even refusing to answer when asked if Robert Penn was her son.
"Nightline" has learned that federal investigators are now interviewing members of other investment groups started by Robert Penn in Michigan and Indiana. Sharon Penn has closed her hair salon.
Copyright © 2006 ABC News Internet Ventures
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