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California Homeowner Bill of Rights signed into law

California Governor Jerry Brown signed into law yesterday the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California's housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.

Making sense of the story

• The Bill of Rights prohibits “dual track” foreclosures that occur when a mortgage servicer continues foreclosure while also reviewing a homeowner’s application for a loan modification.
• Under the new law, homeowners must be provided with a single point of contact when negotiating a loan modification.
• It expands notice requirements that must be provided to a borrower before taking action on a loan modification application or pursuing foreclosure.
• Additionally, the bill allows injunctions against foreclosure until violations are corrected and permits civil penalties against servicers that file multiple, inaccurate mortgage documents or commit reckless or willful violations of law.
• These new laws make California the first state in the nation to take provisions in the National Mortgage Settlement, which covered the nation’s five largest mortgage loan servicers, and apply those rules to all mortgage servicers.
• The law will go into effect January 1, 2013.

Set the Right List Price

By Alain Pinel
Sr. Vice President / Managing Officer
Intero Real Estate Services, Inc.

There is a rule of thumb in the real estate business that wise professionals keep reminding themselves of whenever pricing a new listing. It suggests that if a property is as little as 5% over what is perceived to be the market value, the seller loses… half of the potential buyers! Not a good idea. Worse: if the property is listed at 10% over “market value,” 70% of the would-be buyers are eliminated.

Hence question 1, to the home seller: “Do you want to just list or do you want to sell?” If listing is the deal, be my guest, put any price you want on the contract. If, however, the idea is to sell, then put a price on the house that is likely to attract as many buyers as possible and produce the best possible sale.

Now, question 2, this one to the listing agent: “Do you want to sell the house or do you want to “buy” the listing?” It seems easy enough to get a listing by telling the sellers that their home is worth a lot more than what other Realtors are recommending, but aside from a host of ethical issues, what good does it do?

As we said before in this column, there are three pricing strategies: you can price at “market value” based on pertinent comps, you can underprice a bit in hope of creating a bidding war if and when the local market is ripe for this scenario, or you can overprice and play Russian roulette (and perspire heavily).

A couple of weeks ago, an agent was telling me that in his market, on average, properties end up selling 14% under the initial asking price. Frankly, looking at MLS stats all over the country, such data is not terribly surprising. Many people live in denial.

With this in mind, some homeowners may make the calculation that, to eventually land at a serious Realtor’s suggested price, they should add 14% and wait for the winning offer. Sorry, it does not work that way! That much over can almost guaranty that the house is going to collect dust on the shelf for a l.o.n.g time; at least until such a time when the price is reduced.

I don’t have to remind anyone that a price cut, no matter how much or when, is an emotionally charged event. So much so that when it finally occurs it is often too little, too late. The principle of a price reduction is to give new momentum to the marketing, and resurrect realtors and prospective buyers’ interest in a property. We need to create drama. The timing and the extent of the reduction are keys to the success of the operation.

Typically, in a great market, a price cut might be pertinent after two weeks of exposure and no action. In a good market, a month is usually enough time to test the market before adjusting the price. Now, the thing to keep in mind is that a price cut must be substantial enough to restart the marketing engine.

A calendar of possible price reductions should always be part of the listing negotiation, as to avoid bad surprises. If the market is just lukewarm, merely following the trend with a reduction every month or so, is essentially useless as other newly listed homes already integrate the new valuation and, on top of that, have the huge marketing advantage of being fresh. Any price reduction will have to anticipate on the market moves and beat the most recent comps to stay ahead of the pack.

The moral of the story is that, even though everything about pricing is largely hypothetical, experience often teaches that the lower the list price, the higher the selling price….

Buying a Home Is Not What You See on TV

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Plenty of studies over the years have shown that watching too much TV is bad for your health – physically and mentally. Not only are you sitting and inactive for long periods of time, but the brain becomes passive and often disengaged.

However, TV can be menacing in other ways too, like in the form of misinformation.

Reports this past week have revealed that HGTV's popular "House Hunters" show is likely mostly fabricated. One couple that was featured on the show came forward and said that their story was mostly made up. Maybe that's not such a surprise, but it's worth talking about.

For those unfamiliar with the show, the premise is to follow home buyers in their pursuit of buying the perfect home. It aims to capture the dramas that come along with that journey – the aspirations, disappointments and, ultimately, the happy endings.

I felt compelled to write about this because the show is marketed as a reality show and is shot documentary style. While many of us already realize that most "reality" shows on TV are far from it, there's still a danger in people watching this show and thinking it reflects, in some way, the realities of a typical home purchase.

I feel this is a good example of why consumers need trustworthy agents to set realistic expectations about the real estate process itself far in advance, and also to educate them on the current conditions in their local market. Real estate, like personal finance, has always been one of those things in which people turn to the strangest places for advice. Parents, barbershops, colleagues, friends. Many tend to listen to anecdotes about what went wrong and what went right and take it as pure gospel.

Even though I give people the benefit of the doubt and assume that most were not turning to "House Hunters" as a way of educating themselves on the real estate process or turning to the show for financial advice, I'm glad this story was released. It is a nice reminder that often what we see on TV – even as it's being touted as "reality" – is, in many cases, fabricated or distorted.

The true reality is that sometimes it works out and sometimes it doesn't when trying to buy a home. The key is to be prepared, understand the process and the local market, and not let setbacks deter you from your goal of buying the perfect home. Use an experienced agent who knows the local market and you'll see that, mostly, there's no drama at all.