The Scottsdale Real Estate Files

Boxing great "Hurricane" Peter McNeeley once famously warned a recently de-incarcerated Iron Mike Tyson that he was going to “wrap him in a cocoon of horror” during the course of their upcoming bout.  McNeeley, renowned knockout victim to a bonafide who’s who list of professional pugilists (as in, “who?”), proceeded to back up the chest-beating by sadly succumbing to an encapsulation of his own within 89 electrifying seconds.  For those first 88 seconds, however, the club fighter-turned-circus-attraction floated like a … well … he floated like a Buick and stung like a breeze.  And yet, he took his shot.  With a limited arsenal, he climbed into the ring with the most feared man of his generation not named Willard Huyck (Don’t believe me? Watch Howard the Duck.), and flailed like the drowning tourist he was.

It is tempting to consider only the likely consequence and not the potential glory when it comes to our own personal and professional aspirations.  We foresee the carnage of a half caved-in cranium instead of a hand raised in stunning upset victory.  Lest we forget that Buster Douglas was the original Peter McNeeley, sans the stark difference in outcome, anything can happen when we man up and step through the ropes and into the bright lights. 

No, David does not always slay Goliath, but each defeat paves the way for ultimate victory.  Fortunately, most of us are not tasked with warding off the advances of large humans intent on malice for a living, so the defeats are only painful to our psyches.  As we took turns waxing non-nostalgic and eulogizing the recently interred 2009 last month, pardon me for hopping back in line for another turn at the mic.  This time, however, I reserve the soliloquy for channeling all of that lingering angst and lament into actionable rededication.  No more sitting on the stool, waiting for the corner to throw in the towel.  No more hand-wringing over how all of our ails will be resolved, and by whom.

I may have a career year, I may get knocked upside the head.  Can't be sure which until the bout ends next December.  One thing is certain, however.  Somebody or something is getting wrapped up in a cocoon of horror before it's all said and done.  Believe that.

2010 … let’s do this thing.

“Owner recently obtained property and is working towards gaining clear title.”

Is it any surprise that this seemingly innocuous little bit of verbiage, which has started creeping into private Realtor remarks, seldom appears in the public description of a property listing?  Flipping properties is not an unusual phenomenon, but the transference of title, insured by an underwritten policy, is part and parcel of virtually every legitimate sale of Real property in the state of Arizona.  When a Realtor learns that a seller does not have possession of clear title to the property they are attempting to sell, Circus Circus sized flashing lights and shrieking alarms erupt in said Realtor’s little noggin. 

An unfortunate advent of any market, but an unstable one in particular, is the proliferation of the creative types who seek fortune in the margins of chaos before the powers that be fully grasp the nature of the exploitation.  Rather than effectively working the market to provide value to the consumer, such professional card counters work the market to merely line their own pockets, often to the detriment of an unwitting public.  In their zest to shift into the next great money maker based on the market forces currently at play, the grifter will siphon an usurious profit under the guise of a savior. 

In seeking out the desperate demographic of homeowners who are at risk of losing their homes to foreclosure for one reason or another, unscrupulous predators in our midst are not satisfied with simply collecting a fee for helping facilitate a short sale.  No, that doesn’t lead to the immediate and egregious wealth that is promised in weekend seminars and from late night gurus.  For some, it too closely resembles work. 

And what, pray tell, are the insidious schemes I decry?  While the various masks worn by disingenuity are too numerous to count, one in particular has really drawn my ire.  Certain agents/brokerages who shall remain nameless, if not blameless, have taken to convincing sellers who are behind on their mortgages to deed their properties over to them.  Thus, they are effectively the new “owners,” though they do not have clear title due to the mortgage liens on the property (in addition to possible property tax liens, HOA liens, etc), and never intend to take possession of the property.  At this point, the home is listed for sale on the MLS.  Interestingly enough, even though a quick check of the tax record readily shows that a Trustee’s sale (foreclosure) has been scheduled because the mortgage remains in arrears, nowhere in the listing is the pre-foreclosure or short sale status reflected.  Nope, just that one little line at the top of this post.

So from where does the potential profit windfall arise?  From the margin the new “owner” can create between the negotiated short sale with the bank and the price attained on the open market from an unsuspecting buyer.  One price is represented in the MLS while a far lesser price is negotiated behind the scenes with the bank.  To the broker in the middle of the high wire act go the spoils.

Sound like an ingenious way to earn a buck in this market?  Wondering where the harm is if the seller is able to unload the problem property and the buyer purchases it for an agreeable price?  The issue is two-fold.  For starters, the listing agent is playing Russian roulette with the seller’s future financial well-being.  Owner of record or not, the seller/client is still responsible for the mortgage(s).  What happens if a short sale cannot be negotiated with the bank at a low enough price to create the necessary margin to carve out a profit?  Rather than simply, and honorably, working to sell the home for a price agreeable to the bank, the risk of losing the home and one’s credit is increased exponentially when profit is sought by inflating the end price to the relatively shallow buyer pool. 

Secondly, on top of the risk to the client, a gross misrepresentation is being made to the ultimate buyer.  Not only is the buyer often unaware that they will be paying for inspections and appraisals, giving 30 days notice on their apartments, etc for a property that is less likely to close because of an unrepresented short sale situation, but they would not be too keen to learn that they actually paid well over and above the price that the bank would ultimately accept. 

In these sixteen-shades-of-grey transactions, the buyer ends up paying far more than would have been necessary without the third party involvement of the duplicitous agent/broker, while fiduciary obligations to the client are flouted.  The duty to fully represent the best interests of the client is one that most agents take seriously.  Realtor clichés aside, I seldom encounter the fellow professional who does not.  Driving a potential wedge between the goals of your sellers and misrepresenting the full Technicolor picture of the transaction to the buyer falls woefully short of the minimum standard of care to my way of thinking.  Full disclosure is paramount to any Real Estate transaction.  Falling far short of that requirement, expect to see future litigation from such transactions from the damaged parties involved (even if the damage is only perceived).

Sellers:  Don’t walk, run from any would-be knight in shining avarice that demands you deed over your property as a pre-requisite to the service provided.  When you do so, you lose the rights to the property while maintaining the responsibilities.  If you find yourself behind on payments and in danger of losing your home, locate a short sale specialist and speak with a Real Estate attorney before making any rash and ill-conceived decisions.  For the record, I DO NOT specialize in short sales, and this is not a solicitation.

Buyers:  In 2010, you cannot take anything represented in a listing as gospel.  Even those that are 100% factual may contain intentional omissions that are hazardous to your purchasing health.  You need professional guidance from a trusted resource now more than ever.  I have become quite adept at isolating potential problem purchases in this topsy-turvy market, and in this capacity I AM soliciting your business.

We’re not in Kansas anymore, Toto, and that brick road leading towards your salvation may be yellow for a reason.  Forget the ruby slippers, and throw on your cross-trainers.  You'll need them to get past the flying monkeys.

Start your Scottsdale Home Search today!

The La Brea Tar Pits of what is modern day Los Angeles are renowned for their eternal incarceration of prehistoric life.  Think an 18 to life stint in Folsom is a rough hitch?  Try fossilizing yourself in natural asphalt for thousands of years following an untimely demise that accompanied no greater sin than stepping out for a bite to eat.  Several millenia later, they jackhammer your permanently surprised face out of the earth's candy shell for the sole purpose of humiliating your petrified remains in front of busloads of insolent school kids and German tourists.  Many victims were believed to have plummeted into the inky abyss after stopping for a drink from the surface water that obscured the death trap below.  Subsequent predators then eagerly followed the trail of easy prey to a sticky fate of their own.

Which brings me to dual agency.  To hear most Real Estate professionals describe it, the much maligned practice of dual agency is every bit the equal of those gooey pits as a carnivorous devourer of wayward souls.  Why, one would surely toss baby Jessica back down a well teeming with the stuff before subjecting her to the horrors of limited representation.  In the nearly forty thousand years that the tar pits have been open for business, one human being is known to have been swallowed amongst the saber-tooth tigers, woolly mammoths, ground sloths and aspiring B-level actors.  Meanwhile, dual agency has swallowed countless John & Jane Doe's in only two decades of practice in the metro Phoenix market.  In that time, there has arisen a chorus of familiar refrains.

"How can an agent or brokerage adequately represent two parties with competing interests in a single transaction?"

"How can an agent or brokerage remain neutral when I employed him/her to be an advocate?"

"How can my agent possibly bring me the head of Indigo Montoya if he also represents said eleven-fingered abomination who killed my father?"

As attorneys shape our contracts and further mold our practices to mirror their own, the days of the polyester-encased salesman are largely behind us.  That is a good thing.  There are clear delineations in terms of the roles and responsibilities of the agents involved in the transaction, as opposed to the ambiguity that often existed before the advent of buyer agency.  Under the previous doctrine of sub-agency, an agent could show his buyer property over the course of three months, only to morph into a subagent of the seller when negotiations began on a property.  A ludicrous setup if there ever was one.  Thus, the greater transparency in distinguishing where allegiances lie in a Real Estate transaction has been a positive result.  The rise of buyer agency has led to the tandem rise of another apparent conflict of interest in representative terms, however: Dual agency.

Dual agency arises out of transactional occurrences in which the same broker represents both buyer and seller.  Sometimes this entails one agent working on behalf of both parties, but more common, especially in large brokerages, are occasions where an agent from Brokerage A brings a buyer to the listing held by another agent from Brokerage A.  Even though there are two agents involved in the potential sale, all Real Estate business flows through the company's designated broker.  Thus, even though, in practical terms, each side may appear to have the exclusive representation of their chosen agent, the same broker ultimately bears responsibility for both sides of the transaction. 

While I agree that a single agent attempting to wear both hats (or neither if he more or less recuses himself as a mediator between parties in the process) in a transaction is generally marginalizing his service, it is inane to argue that all dual agency eventualities are, and should be, avoidable.  If a buyer wishes to purchase one of my listings without the involvement of another agent, I will certainly oblige, but my loyalty is unmistakable.  I represent the seller exclusively, and the buyer is my customer.  When I take on a buyer client, however, it is ludicrous to suggest that I refrain from showing them certain listings simply because a fellow Realty Executive has it up for sale.  If a property fits the criteria of my client, I don't care if it is listed by Ming the Merciless.  Full disclosure is paramount, but the chest-thumping that often decries all possible manifestations of dual agency is misguided.  Would my seller clients really prefer that I refrained from showing my listings to fellow Realty Executives, drastically reducing their potential buyer pool?  Would my buyers really prefer I exclude the listings from the top selling brokerage in the state when we begin our hunt?  I highly doubt it.  Matter of fact, I have yet to encounter the client that has instructed me to do so after an initial discussion of the limitations in representation that can crop up in such circumstances.  Finding the house or the buyer is first and foremost.  Concerns over representational nuance is secondary.

There can be advantages in addition to the well reported disadvantages with dual agency.  Some principals may find the process less adversarial and more expedient when the variable of a competing agent is removed from the equation.  It can very well be argued that the dynamic lessens the presence of the "telephone game" syndrome and needless acrimony that can accompany the dueling egos of multiple agents.  More to the point, if agents of the same brokerage have a solid working relationship, and work for a reputable organization, there is the added benefit of knowing the transaction will be handled professionally.  Limited representation from a pro is of far more benefit than full representation from a schmuck.  While representation may be limited for a client, it is equally limited on the other side of the table.  The playing field remains level, as it is in cases in which each party has the full, unflinching representation of a brokerage.

Dual agency is one of those topics that causes a fair amount of unease, but it shouldn't be feared by name alone.  You should have full and frank discussions with your chosen agent about the possible ramifications of the various forms of agency floating around out there (preferably at the beginning of your relationship, rather than a forced immersion at the time of a contract submission).  There are circumstances which may call for it, and as long as all parties understand and agree with the terms, can prove beneficial.  Is it ideal?  Far from it.  Then again, neither is passing up the home of your dreams because it has the misfortune of being listed for sale by your agent's brokerage.

Dual Agency:  It's not just for shafting the public anymore!

By any measure, 2009 has been an ogre.  A lineal Shrek, if you will.  We probably all would have given it a miss had we heeded the decree of the Chinese calendar that it was to be the Year of the Killer Tomato.  Given the chance to hit reset on the impending culmination of 365 vexing days, however, I would not take it.  There are strengthening vitamins and minerals to be had in the juices of the very tomatoes at my feet that have pelted my face and stung my wide eyes.

There have been financial challenges, the likes of which were previously alien to me.  With the disjointed gyrations of an industry and market that represent a brand new dance to even the longest tenured vets, I have been forced to the brink of professional incineration for long stretches on end.  With seared toes and fingertips, however, I’ve held fast at the threshold to that fiery abyss. My Gen-X core becoming more pliable and durable all the while in paradoxical harmony.  A representative for a generation that is accustomed to having, to entitlement, I have learned the pain and honor of struggle.  Months on end to produce results that formerly took days or weeks.  Deals faltering where they had always stuck.  The size of the paychecks for those miraculous transactions that have beaten the odds to reach the closing table dwindling in numerical lockstep with the eroded property values in our midst, even as costs continue to rise.

Bill collectors unconcerned about any of it.

There have been personal challenges.  The year began with mortality staring unflinchingly into our faces.  Loved ones saddled with dreaded diagnoses and marching orders to treacherous corners of an unconcerned earth.  And loss.  There has been loss.  Both that which was not yet in our grasp and that which had been held in loose, complacent grip.  In our sorrow, we have found new strength.  Renewed commitment.  Stronger bonds that will never permit the tenuous clutches of the immediate moment to intrude upon the existence or color pallet of a promised collective future.  Deeper reservoirs of ourselves with which to nourish those who require infinite supply.

With a little less than a month remaining in this stanza, I am eager to turn the page, albeit wholly aware that no classic prose is free of drama.  That every resolution requires a conflict.  When all is said and done, and the metaphorical book of me is written, it will be this very chapter that stands out in full bas relief.  I needed 2009 to become who I am to be, and I wouldn’t give it back for all the rotten tomatoes in Shanghai.

• Housing will not fully recover until 2012.  That is when the glut of backlogged foreclosures is expected to be phased out of the market. 

• Housing will recover by the end of the year.  Now that inventory has contracted to average levels for what constitutes “normal” regional markets in major metropolitan areas where prices have declined as much as 50% in the past three years, and month to month sales have steadily increased over the past six months, demand has realigned with supply to arrest the freefall in values.

• The housing recovery began in early 2009.  Median price increases in some markets indicate that even while many pundits were openly wondering when the bottom of the market would appear, it was actually several months in the rearview mirror.

Many factors and variables, and just as many divergent opinions to boot.  So many, in fact, that you almost have to choose amongst the purported experts to determine whether you fall in the half empty or half full category.  Job rates, interest rates, unemployment rates … psychiatric rates, for spending too much time poring over the data and extrapolations will render one in need of a head exam. 

Overanalysis 101.

You don’t need flow charts to tell you where things stand at the moment.  You won’t need a market report to tell you when things are better.

You’ll know the market has recovered when you no longer dread the trip to the mailbox or evening phone calls.

You’ll know the market has recovered when you can confidently re-enable automatic bill pay from your checking account instead of prioritizing which ones get paid this month by how far past due each is.

You’ll know that the market has recovered when you don’t have to decide whether you or a loved one is really ill enough to warrant the cost of a trip to the doctor.

You’ll know the market has recovered when you no longer have to explain to the kids why you can’t go to the zoo or stop for ice cream today. 

You’ll know the market has recovered when sleep comes as readily as worry formerly did.

You can stop looking to someone else to tell you when the market is fully healed as the housing implosion is the root of these greater ails.  It’s far easier to take stock of your own life, and those of your friends and family, to see where along its arc the pendulum is currently settled.  As the finance/housing sector dragged our economy into the muck, it will again lead us back to dry ground.  No need to watch the stars for celestial clues.  Just do what no pundit can and watch your own life for improvement.  You’ll know housing has recovered when both of your own feet are planted squarely on terra firma. 

Most importantly, beware the forecasts that don’t jive with your own internal index.  Those who would adamantly assert the rosiest or bleakest prognosis are likely more interested in influencing your behavior than in your well being. 

“Buy now before prices shoot back up!” 

“Sell now before prices erode further!” 

When you stop listening to yourself, you risk placing all of your trust in the megaphones of those who have a vested interest in your fear.

Is the housing market improving?  Is now the time to buy?  The time to sell?  For months, I have been asked to provide the answers to these questions.  I have dutifully provided my vague predictions with the obligatory caveat that no one truly knows how a free market will behave from one day to the next.  I realize, though, that in supplying answers to those who actually give the market context, that we have all been looking at this thing from the wrong perspective.  It makes zero difference where I think the market stands at present, and where it is headed.  The very consumers who ask me these questions are the ones who will ultimately provide the truth or fallacy to my various hypotheses.  So I turn the tables and ask the consumer, the actual authority, the very same question. 

“What is the state of the Real Estate market?”

Feel free to comment here or send me an email with your thoughts.  Looking for opinions from consumers and laypersons, not agents or financial wizards (all comments welcome, though).  I will post the results in a follow-up piece.

Mr. Homeowner & Mrs. Homebuyer, the floor is now yours.