What are the biggest issues facing the real estate industry today, and how can the industry work together to start fixing these issues? We asked readers what the biggest issues are and how they can be solved. Want to know what Chicagoland agents think needs to be done to help get the industry back on track? Read on.
The roots of the problem posed by a huge inventory of distressed properties, especially foreclosures that are or soon will be REOs, are deeply entangled in the structure of our nation’s economy. Certainly, the scope of the problem is undeniable. In Cook County alone, Fannie Mae estimates it has 70,000 residential properties currently in the foreclosure process, and it is just one lender, albeit a very big one.
Sales of distressed properties, including foreclosures and short sales, accounted for 40 to 50 percent of all home sales in the metropolitan Chicago real estate market over the last few months, and home values will continue to be under pressure as long as we are dealing with an inventory of REO properties that seems to be effectively bottomless. My estimate, based on what I’ve learned from a range of sources, is that it will take anywhere from four to five years before the REO inventory is reduced to levels conducive to a stabilization and rebound in home values generally, even though the bottom may be reached sooner in some local markets.
To move through the REO inventory more quickly will require a significant increase in consumer confidence and a substantial reduction in unemployment. There are, however, other issues that can be addressed in the short term that could help us bring buyers into the housing market.
One excellent example is the roadblock now found frequently with properties that are part of a homeowners’ association (HOA). In HOAs that have experienced a large number of foreclosures, it has become difficult or impossible for buyers to obtain financing to purchase a home. Lenders worry about the financial health of the HOA, while the HOA struggles to collect the assessments due from distressed units and maintain its financial health.
Not long ago, I was given a listing for an REO property that was three years behind in its assessments to the tune of $9,400. Eventually, the institutions that foreclose such properties are liable for those overdue assessments, but delayed payment can be a serious blow to the HOA. Finding a way to reduce the burden on HOAs and thus make the homes in them easier to finance would be a meaningful step to improve the current situation. Perhaps it could be done if lenders were obligated to pay assessments as soon as a lis pendens notice is filed. It would not only allow us to sell foreclosures more quickly, but by making the units easier to finance, it would support the market value of those units and of attached homes generally.
A second issue that is already being addressed to some extent, especially by Fannie Mae, involves the rehab of REO units prior to listing. Fannie Mae is now doing that with about 80 percent of its properties, bringing them up to FHA standards, and some private lenders, such as Wells Fargo, are moving in the same direction.
It is much easier to sell homes that are habitable than those that will require the buyer to do extensive work even before taking possession, and getting REOs into habitable condition will also benefit the surrounding community, make all properties more salable.
Unfortunately, there is no magic bullet that will make our REO backlog disappear anytime soon, but if lenders, real estate professionals and government put their heads together, they should be able to find ways to make that process more efficient and less painful.
Edward Lukasik Jr. has been selling real estate since 2001, and specializes in REOs and investment sales. He is the broker/owner of RE/MAX Professionals in Bolingbrook, and was named the No. 1 Individual RE/MAX Agent for Northern Illinois for total commissions and Most Closed Transactions for an Individual for RE/MAX Northern Illinois for 2009 and 2010. In addition, he received the Distressed Property award for RE/MAX Northern Illinois, which is recognition for specializing in REO and distressed property sales.
The biggest issue of today’s real estate industry is the education, or lack thereof, for real estate agents. Many new agents are not familiar with the mechanics of the standard real estate transaction, and only begin to learn through trial and error. When dealing with thousands or even millions of dollars, trial and error can come at a pretty hefty price. Currently, in order to obtain a license, one must first pass a real estate license class. But that class only prepares you to take the final exam. Successful completion of the class will grant you an opportunity to take the national and state exams. If you pass these exams, you are given a real estate license. In reality, none of the above prepares you for actually conducting business.
Once I received my license, I began to wonder, “Where do I go from here?” In my first three months, I learned there were many career paths I could take as a real estate agent, and it seemed like I had more unanswered questions after receiving my license than before: What are my options? Which career path would work best for me? Where do I start?
Since I started in real estate, I learned the number one rule of the game was “figure it out for yourself.” How can new agents make their clients feel confident in their abilities if they’re still trying to “figure it out?”
When one tests well and has a basic understanding of real estate concepts, voila, you’re an agent. But isn’t being an agent much more than just taking the exam? What about people skills, negotiating skills, professional courtesy and thorough knowledge of your specialty? These qualities are necessary to be good real estate agent but are not taught in class or covered on the exam – and that’s the real problem, that agents aren’t getting a full education to prepare them for their jobs. To solve this problem, I propose that before conducting business as an agent, there should be a few more classes that are different and incident-specific.
These classes would combine class learning with real world experience. The first mandatory class should serve as an introduction, better known as “Life as a Real Estate Agent 101.” Welcoming new licensees into the business would be the main focus of this class, and concepts covered would include professional courtesy, career path options, tax changes, memberships and organizations, prospecting, and making the decision to be full-time or part-time. After this class, each licensee should choose at least two career path options including: listing properties, selling properties, BPO agent, leasing agent and agency ownership. Classes about listing properties and selling properties would focus on sales transaction procedures, financing options and the sales of distressed, traditional, residential and commercial properties. BPO agents would take classes that mainly focus on companies that want BPOs, their expectations and the BPO standard procedures. Leasing agent classes would focus on the process of finding landlords, screening tenants and prospecting. An appraisals and inspections class would be offered as an optional class. Each class would be taught by a veteran in the given career field with a proven track record of success.
After each licensee completes three classes (one mandatory and two career path classes), agents would transition by applying their formal knowledge to the real world by completing a one month apprenticeship. Licensees would be assigned a mentor and allowed to shadow and assist an agent in their career of choice. These mentors would be given a continuing education credit for their time. Upon completion of the apprenticeship, licensees would be awarded a designation of speciality in their career of choice. This educational system would help solve the education issue among today’s agents.
In a perfect world, this formal education would be more efficient than the exam in transitioning each licensee for conducting business. Let’s face it, only a small percentage of the national and state exam is actually used daily by agents. I don’t believe that this solution would prepare a new licensee for everything that they may encounter as an agent, but it would give them more of an idea of what is expected of them as a real estate professional.
Cara J. Walker was born and raised on Chicago’s south side in the Roseland community and began her real estate career in 2009, specializing in REO management. She currently works at Great Street Properties in Chicago’s West Loop. Walker believes that real estate is much more than selling properties. It’s solving the client’s issues and concerns. Due to that belief, she refers to herself as a “Solution Specialist Realtor.”
According to MRED, through the first quarter of 2011, the average list price to final list price ratio in Cook County was 93 percent for detached single family housing. The average price to original list price ratio was 86 percent. Realtors can take steps to reduce these spreads, shorten market times, and in turn, reduce the oversupply of inventory. The first step is for the agent to do their research. Take advantage of the MLS service to research the current competition, as well as recent closed, expired and cancelled listings. Research will allow you to form an educated opinion of the list price. Deferring that responsibility to the homeowner may get you the listing, but may not get you the commission. In the homeowner and Realtor relationship, Realtors are the experts.
The oversupply of inventory is one of the major hurdles negatively affecting the real estate market throughout most of the country. Not only is it increasing the competition, in some cases it is causing paralysis by analysis. I hear it from Realtors constantly that their buyers will simply not make a decision. Listing agents can assist in making an impact on this situation. Your list price must be compelling, not just competitive. The problem is too much competition, so why competitively price your listing? The goal should be to offer your listing at a price which compels buyers to act. A quicker sale at a compelling (lower) list price often nets the sellers and listing agents more money than a protracted market time at a competitive (higher) list price. Educating the sellers on the costs to carry, such as mortgage payments, taxes, insurance and association fees, can help convince them to offer the property at a compelling list price.
Once the listing is listed at a compelling list price, the offers should come rolling in and the property will quickly be under contract. Then you have to deal with the appraiser.
Here are what sellers and agents should do to deal with the appraiser.
Seller to do’s:
- Fix minor repairs, such as exposed wiring, leaky pipes, cracked windows, loose handrails and any peeling paint.
- Clean up the yard and landscaping.
- Make sure to have handy a copy of the Plat of Survey for the appraiser and Realtor to view.
- Make a list of improvements that have been made since you purchased the property and provide the costs for each.
- Try to be flexible when setting up appointments and straighten up before the appraiser or potential clients arrive to view the property.
Realtor to do’s:
- Prepare your sellers by making sure to educate them about the specific requirements for the types of financing such as FHA or VA.
- Be proactive and take the time to meet the appraiser at the appraisal inspection.
- Be prepared and supply the appraiser with MLS sheets of comparable sales and listings that support your negotiated contract price. This is the number one disconnect between Realtors and appraisers! In the 1990s and early 2000s this was considered to be commonplace; however, now it is rare for a Realtor to regularly meet the appraiser at the property. I am sure technology has much to do with this, but it also creates more of an adversarial role as opposed to supporting role. These comparable sales should be recent and therefore reflect the current market in that particular area.
- If you find that the appraiser is less familiar with the market, take the time to educate them.
- As the listing agent, you are an advocate for your client, and therefore, the subject property. You have a right and duty to support your negotiated contract price to the appraiser.
- If the parties believe the appraiser’s opinion of value is inaccurate due to factual errors or omissions, the buyer can request a “reconsideration of value.” This can be filed on behalf of the borrower through the lender. The reconsideration of value should contain any details and additional sales data that may have been overlooked by the appraiser at the time of the original appraisal. As the Realtor, it is important to remember that the information in the appraisal should be challenged and not the appraised value.
It is also highly recommended to obtain an objective third party opinion from an independent fee appraiser. However, before you do, make sure to ask if the appraiser belongs to a professional appraisal association, such as The National Association of Independent Fee Appraisers (NAIFA) as they are bound by a higher degree of professional standards and ethics.
Getting all parties involved and open lines of communication is the only way to ultimately bridge the gap between agents, sellers and appraisers, and ultimately, solve the appraisal issue.
Matthew Rayburn is the owner and Managing Director of IRR Residential – Rayburn Appraisals. Rayburn is also a State of Illinois Certified Real Estate Appraiser, a member of NAIFA, a member of ICAP and has been appraising in the Chicagoland market for over 20 years. Please feel free to contact him via email at email@example.com or 630.548.4984.
Discrimination in housing, lending and related fields remains a pressing issue in our industry. I know from experience. I was raised in Chicago by Cuban parents who, at first sight, appeared to have a biracial marriage with biracial children. We faced discrimination regularly, as we were identified by our color rather than who we were. The situation wasn’t easy for my family, as we went through this together.
According to a 2010 study by the National Fair Housing Alliance, fair housing complaints are expected to increase in the rental sector, as people displaced by foreclosure have a tougher time finding adequate housing situations.
Of recent housing violation complaints filed at the federal level, 22 percent reflected familial status-related issues, 28 percent involved race-related issues, and 50 percent were issues related to disability, according to the Alliance. These are just some of the classes protected by the Fair Housing Act. The federal government recognizes seven protected classes. The city of Chicago recognizes 13, and Cook County identifies 14.
Solutions to fair housing issues start with you by leaving preconceptions at the door and, most importantly, by educating yourself. Here are some resources to aid you:
- The Chicago Association of Realtors’ “Fair Housing Overview” provides a full list of the protected classes in Chicago, Cook County and Illinois. You’ll find it under the Advocacy/Fair Housing tab on ChicagoRealtor.com.
- The Illinois Association of Realtors’ has developed an annual multicultural summit to teach agents about the changing face of real estate. Go toIllinoisRealtor.org/fairhousing to learn about the summits. Also, free downloads of “Disable Renters Housing Rights” and a “Practical Guide for Landlords” are available at IllinoisRealtor.org/advocacy.
- The National Association of Realtors also offers resources. NAR’s “At Home With Diversity” certification program teaches how to be effective in a rapidly changing multicultural market, and how to transact business in culturally competent ways. Also online in the NAR library is the “Field Guide to Fair Housing” for many resources, such as videos, brochures and other collateral for your office.
- Join committees like CAR’s Cultural Diversity/Equal Opportunity Sub-Committee, which meets monthly, and organizations like the National Association of Hispanic Real Estate Professionals (NAHREP); Asian Real Estate Association of America (AREAA) or the National Association of Real Estate Brokers (NAREB). These organizations offer great networking opportunities and access to rich demographic data and studies.
HUD can’t solve fair housing issues by itself. That is where community agencies can help by focusing on and resolving these issues quickly at a local level, and working with municipalities to enforce the law.
Fair Housing Month is observed every April, but for those of us in real estate, it is part of our transactions and matters every minute. As Americans, we all have the right to equal access to housing of our choice. It is our differences that make us unique and our shared experiences that help us be one people, and it’s the law. Follow the Hard Rock Café motto: “Love All, Serve All.”
Mabél Guzmán, ABR, AHWD, is the 2010-11 President of the Chicago Association of Realtors. President of Business Development and Sales of ENVISION Real Estate, she is respected for her professionalism, tell-it-like-it-is honesty and ability to build relationships. A veteran Realtor, Guzmán is recognized for her efforts to advance the professionalism of the real estate industry, including by serving the Illinois Association of Realtors and the National Association of Realtors, on their Boards of Directors and as a member of various committees. She is Also an advocate of fair tax policies, and has worked with the City of Chicago to ensure that more than 30,000 city homeowners had the opportunity to file tax appeals. She also participated in Illinois Association of REALTORS discussions at the national level about loan limits and housing policy.
Guzmán is an active member of the Women’s Council of Realtors – Chicago Chapter, Board of Directors of the National Association of Hispanic Real Estate Practitioners (NAHREP) and Asian Real Estate Association of America (AREAA).
The independent contractor system in a real estate brokerage is a successful and proven sales/production business model. It is the embodiment of the free enterprise system and effectively harnesses all the energies and benefits of both risk-taking and reward for the individual entrepreneur. At the same time, accountability for all of the details of service delivery, though a formal system is largely non-existent, remains a most important feature of professional service for consumers.
There is a widely held belief that raising professional accountability and creating standards of service are inconsistent with independent contractors. On close examination, we frequently find that those unable to hold independent contractors accountable generally fare no better with employees. Nearly every industry and business depends upon independent contractors for products and services essential to both their internal operations and to the delivery of products and services to their customers. In virtually every situation’s expectations, standards and accountability are fundamental to an ongoing independent contractor relationship.
While it is common for real estate brokerage companies to have standards for sales productivity, systems for tracking sales, and awards for sales achievement, when it comes to the service quality and customer satisfaction… well that’s another matter. That’s up to the individual real estate professional.
Real estate broker/owners and managers have traditionally hidden behind a fairly peculiar interpretation of “independent contractor” as an excuse for abdicating service quality and customer satisfaction responsibilities. According to the IRS, the general rule is that an individual is an independent contractor if the payer has the right to control or direct the result of the work – the outcome, what is to be done – rather than how it will be done. In defining a service outcome, it is possible, even essential, to identify or even require necessary features and elements to assure that prescribed outcome. Some elements and required behaviors are a matter of regulation or required by law.
Offering sales training and skill development assistance does not violate independent contractor status. Why would service quality and customer satisfaction feedback to better assure the result or outcome be viewed differently?
Most consumers believe that virtually any real estate professional can help them sell or buy a home. And with 1,000,000-plus Realtor members the choices are abundant.
According to surveys conducted by NAR and QSC, Inc. of San Juan Capistrano, Calif., one in six consumers surveyed following the closing of the sale or purchase of their home is less than satisfied with the overall service provided by their agent.
When asked to evaluate specific areas of service that were important, the following were areas of greatest dissatisfaction:
- Frequency and effectiveness of communication
- Negotiating assistance and results
- Representation of a client’s best interests
- Attention to details and timely follow-up
- Satisfaction with price and terms
- Post sale follow-up
Only one in four buyers and one in five sellers are contacted by their agent in a post closing service follow-up call. Consumers believe they are entitled this follow-up to resolve any unsettled issues and business owners feel the consumer deserves this kind of service and attention.
These measured inconsistencies are industry-wide. They are not the result of a genetic flaw common to those who pursue a career in real estate. They are, however, a reflection of lack of accountability. They are a systemic problem – there is no system of accountability and service.
Independence should not be an obstacle to accountability. Thousands of agents and broker/owners are working in a spirit of partnership and adopting a new service model where service systems, standards, accountability, service performance metrics, customer feedback and ratings are producing astounding results.
Based upon the customer service feedback conducted by QSC, Inc. of nearly 3,000,000 surveys, agents and broker/owners adopting these higher standards and accountability are generating a 51 percent increase in “very satisfied clients” and a 67 percent reduction in “dissatisfied” and “very dissatisfied” clients.
Partnering with an organization that provides independent validation of these results offers professionals with valuable content for marketing and social networking activities while meeting consumer need for transparency and reliable data to make better decisions and choices in selecting their real estate professional.
Today’s consumers want professional accountability and transparency. Combining the power of the independent contractor with higher accountability, consumer-centric metrics, and independently validated service quality assessment create a win-win-win scenario for consumers, professionals and business owners.
Larry D. Romito is CEO and founder of Quality Service Certification, Inc. the leading provider of resources, technology and the independent validation of service quality and customer satisfaction in the real estate industry. He holds an undergraduate degree from the University of Illinois (Urbana) and an MBA from the University of Chicago Booth School of Business.
Since the housing crisis started, there have been changes weekly – sometimes daily – in credit guidelines for mortgage approvals. Gone are the days of stated income, stated assets or no income and no asset verification. The subprime industry was also eliminated. Banks even added additional overlays to tighten guidelines even further in order to reduce the bank’s risk.
When a crisis like this occurs, the credit pendulum swings too far in one direction. This happens because investors and banks try to reduce the number of foreclosures in the future. As the housing market has neared the bottom recently, the pendulum is now gradually swinging back towards the middle. A lot of the banks have dropped some of their additional credit overlays. As the market starts to improve, credit guidelines should start to moderate and declining prices of homes should stabilize.
But still, the perception out there for a lot of our clients is that they cannot get a loan.
Even though we do not have a lot of control over the issue of tight credit, there are still some things we can do to address it. For instance, there are a lot of people who think that the credit guidelines are so tough that they do not even bother to apply for a loan. In reality, the credit guidelines are still very reasonable. The exotic loans are gone, but the conventional, FHA and VA loans are still obtainable. Debt ratios range from 45 percent to 50 percent in a lot of cases. FHA and 20 percent conventional loan requirements can be 100 percent gift funds for down payment and closing costs. The credit score minimum for FHA range from 620 to 640, depending on the lender, and there is talk that the banks may decrease their credit score requirements on FHA loans.
Our job as mortgage loan officers is to encourage your clients to get a pre-approval. They will be surprised that the credit guidelines are really not that bad. The documentation has increased, but the pre-approval process will help them through it. The more people we can inform that the guidelines are still reasonable, the more successful everyone will be at obtaining a loan…and this will help to eventually get the market back on track.
Some people say there has never been a better time to buy a house. Prices are greatly reduced and interest rates are very low. The affordability index is high. So, let’s spread the word – educating clients about loan and credit guidelines is key to solving this issue!
Ernie Losch is a Mortgage Loan Originator with Fifth Third Bank. Losch has over 30 years of experience in the mortgage and consumer lending industry. He is widely recognized as a top mortgage banker serving the northwest suburbs. Losch can be reached at 847-354-7043 and by email at ERNEST.LOSCH@53.COM.