Study: Hot housing market turns to big chill

In an article entitled, “Study: Hot Housing Market Turns to Big Chill,” Daniel P. Ray of tells us of a new report that shows more than half of U.S. cities that experienced housing price declines in the fourth quarter of 2006. He mentions that prices fell in 73 metropolitan areas surveyed by the National Association of Realtors; that prices rose in 71, and that five areas remained unchanged. The two states that had the biggest declines were Ohio, where the loss of manufacturing jobs has shredded the economy, and Florida, which he said enjoyed stratospheric price appreciation during the housing boom.

Despite these findings, Ray said that Realtors remained optimistic, “The ever-optimistic Realtors sounded a positive note in their report. They said the report likely marked the bottom of the current housing cycle, because the decline in prices show that home sellers have finally awakened to the reality of the declining market and were willing to negotiate lower prices.”

Click here to read full article, “Study: Hot housing market turns to big chill” by Daniel P. Ray,!

To Pay, or Not To Pay, Discount Points.

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I recently read a couple of interesting articles regarding loan points and, whether or not, it is wise to pay them; but before we venture into this question, it would be best to explain what loan points are (for those who do not know). Here is how Holden Lewis, an advice columnist for, describes a discount point in his article entitled Paying mortgage discount points – a primer:

“One discount point is an upfront payment of 1 percent of the loan amount, paid at closing. You receive a reduction in the interest rate in exchange for paying discount points. You end up with a lower monthly mortgage payment…Discount points are based on the loan size, not the purchase price. If you borrowed $200,000 to buy a $300,000 house, one point would cost 1 percent of the loan amount, or $2,000. Two points would cost $4,000. Paying discount points doesn’t reduce the amount borrowed…As a rule of thumb, the mortgage’s interest rate is reduced by a quarter of a percentage point for every discount point you pay. That’s just a rough guide, though; the actual amount of the discount varies by lender and can fluctuate in response to movements in the bond markets.”

Why Would Someone Want to Pay Discount Points ?

The main reason for paying discount points stems from a general desire to reduce the interest rate on a mortgage, thus, achieving a lower monthly payment upfront. This scenario looks favorable, at first sight. However, in a article entitled “Borrowers Seldom Score By Paying Points,” Chief Economist for Quicken Loans, Bob Walters, said otherwise, “If you’re going to be in that mortgage longer than the break-even point, you win…if you aren’t in that mortgage longer than the break-even point, you lose.” Therefore, if you intend to refinance in the short-term, you would not really benefit from paying discount points upfront. Bill Lyons, president of San Diego-based LEI Financial, says that a lot of people would benefit from making an extra payment every year, rather than paying discount points.

According to Holden Lewis you can estimate a breakeven point, to see if it warrants paying discount points, “To find out whether you’ll hold the mortgage past the break-even point, you must have a notion of how long you will keep the mortgage. If you plan to sell the house or refinance within two years, it probably doesn’t make sense to pay discount points. On the other hand, if you plan to keep the mortgage for 10 years or more, you’ll save money in the long run by paying points.” Lewis also offered a formula to calculate the break-even point:

“The simplest way to calculate the break-even point is to ask the lender how much you would save per month by paying a certain number of discount points. William Noll, mortgage consultant for Wells Fargo Home Mortgage in Hershey, Pa., likes to do it this way. He brings up a hypothetical example where $1,000 in discount points reduces the monthly payment by $15. He divides $1,000 by $15, for a break-even point of 66.6 months, or roughly five-and-a-half years…Noll doesn’t think it’s worth the bother if a buyer plans to keep the mortgage for only a little longer than the break-even period. Better to put the money in a certificate of deposit, he says. ‘Unless the customer tells me he’s maybe going to be in the home maybe 10 years or more, I generally don’t recommend points,’ he says. ‘But I leave it up to them.'”

Source links:

“Paying Mortgage Discount Points: a Primer” By Holden Lewis —¢ “Borrowers Seldom Score By Paying Points”

‘Flipping’ is not always a dirty word

There was an interesting article delivered to my inbox today, regarding residential rehab projects, also known as, “flipping.” In recent times, this practice has garnered an unflattering reputation, because of unethical people, which abuse the system. The truth is, rehab projects can yield decent returns, without resorting to greedy tactics.

Here is a glimpse of Q&A; article “Flipping Is Not Always a Dirty Word” by Steve McLinden of

Q. “Dear Real Estate Adviser, Why is it called “flipping” when an investor buys a house under value and sells it for what it’s worth? Whenever I hear the word, it seems to have a negative connotation. — Tina R.”

A. “Dear Tina,You’ve really hit on something here, especially with your ‘sell it for what it’s worth’ comment. But let’s back up for a second. Some honest and handy rehabbers who buy properties that are physically and (or) financially distressed, then promptly fix them up and turn them over — or ‘flip’ them — to a new owner are being punished because of rising mortgage fraud over the past decade.

Sadly, it was the old ‘one-bad-apple’ syndrome that caused most of the acrimony. During the overheated housing market of the late 1990s and early 2000s the distinct odor of greed wafted over the industry. Not satisfied with healthy profits, a number of participants sought excessive profits and didn’t let things such as ethics and the laws get in the way.”

Click here to read full Q&A; article by Real Estate Adviser Steve McLinden —¢

How to tell if an income property is over-priced:

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Investing in real estate is riskier than investing in a Certificate of Deposit, so why would an investor be satisfied with buying income property at a 3%, 4%, or even a 5% cap rate?

Real estate investment opportunities that pencil out to low cap rates like these are overpriced, because investors can earn the same rates of return in a safer investment vehicle. Investments should earn more of a return for assuming the increased risks associated with real estate investments.

With a high-yielding CD account, money can earn between 4 —“ 5%, safely without lifting a finger. With real estate investments, an investor assumes more work, more risk, and therefore, warrants more of a return on money invested. This assumption is practical, and makes sense from an investor’s perspective.

Experienced investors of all types know that with increased risk, they can (and should) expect more of a return on their invested money. You know you are looking at an overpriced income property, if it pencils out to a cap rate of 3 —“ 5%. Buying properties with low cap rates like this does not make sense, because an investor can earn these rates in a safer high-yielding CD account.

CD rates as of 12/09/2006 (source cited from, for informational reference only.)
6 month CD

1 yr CD

5 yr CD

1 yr IRA CD

5 yr IRA CD


Smart investors compensate themselves for the added risks they assume by establishing higher performance expectations for riskier investments, including real estate.

Buying overpriced income properties does not make much financial sense. Properties that produce cap rates under 5% is overpriced, in all honesty, because you can make these kinds of returns in a safer CD investment. Risk and reward go hand in hand.

Complacent Bureaucracy In Washington State!

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Dear real estate consumers of Washington State:

We cannot depend on state agencies to do their job of protecting our freedom of choice. Our state Attorney General‘s office is under the impression that some “exclusive dealing” agreements have pro-competitive benefits.

I fervently disagree.

It was disturbing to read the following statement from Jonathan A. Mark, an Assistant Attorney General at the Office of the Attorney General Of Washington State.

“While exclusive dealing can, under a particular set of circumstances, give rise to antitrust concerns, it is not presumptively illegal to enter into exclusive dealing contracts. In fact, antitrust law recognizes that, in many circumstances, exclusive dealing contracts can have significant procompetitive benefits. Consequently, exclusive dealings
are not disfavored under the law and generally constitute an antitrust violation only when it lessens or substantially forecloses competition in a particular market.”

The truth of the matter is that lists:

1. Thirty-three businesses under “Dining”

2. Twelve businesses under “Hotels”

3. Eight businesses under “Attractions”

4. Thirteen Seattle travel guides under “Visiting”

5. Fifty-two businesses under “Nightlife”

Yet under their “real estate” category they exclusively refer all inquiries to only ONE company for an entire region.

This does not make any sense. I know that there are several other exclusive buyer agencies, aside from our own, that operate in the Puget Sound region of Western Washington. Below are some of them:

Amiad & Associates, Exclusive Buyers Agency – Vashon Island

The Buyer’s Agent, Dream Drafters Realty – Seattle, Bellevue, Everett

Abbey Realty Exclusive Buyer Representative – Ft. Lewis area

Buyer’s Data Realty – Exclusive Buyer Brokerage – Whidbey and Camano Islands

These companies only work with buyers.

This was my response to Mr. Mark’s disturbing statement:

“Dear Jonathan A. Mark,

Your lack of concern is disturbing. Misconstruing the term “exclusive dealings” does not absolve your responsibilty of protecting consumer choice and preserving free competitive enterprise for all businesses.

You have failed Washington State consumers and the small businesses who have a right to a free and competitive marketplace. Your complacency is a disservice to the people you are charged with serving.

I have full faith that consumers would disagree with your office that exclusive dealings has any procompetitive benefits to them, as it diminishes their Right to freedom of choice. We shall let the people decide for themselves.

Final Note:

Please know, that despite bureaucratic complacency, you CAN protect your Freedom of Choice and neutralize biased referral sources by doing your own research, developing your own hiring process, and setting up interviews with a few good companies on your own. Only then will your freedom of choice be preserved, and the power taken away from those who do not respect it.

The Disappointing Truth About NAEBA

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It is official. Our agency will not be renewing our membership with NAEBA (National Association of Exclusive Buyer Agents) in 2007. There are a few reasons for this, however, I will stick to the main point.

I was excited to learn about this organization, at first, because EBA’s have limited avenues for support with fellow colleagues. I was hopeful that I would find camaraderie, support, enhanced growth opportunities, and the chance to compare notes about the challenging business of exclusively working with real estate buyers.

With so few of us out there, one would think that there would be more unity within the organization, but there is only political favortism towards senior members. This is especially true when a new member operates in the same market area as a senior member. You will quickly find yourself outside of a deeply engrained clique, that tends to play political games and favoritism. The instability of this organization exists not only with new members, but also from within its administration.

Here is what one member had to say about his experience with NAEBA:

What has been most disturbing to me over the years is the amount of internal politics and ego battling over the years for various positions or policies within the organization. It turned me off and caused me to drop my membership for a long period of time. I am most disturbed and embarressed that friends of mine became victims of the internal political struggles that also prevented NAEBA from emerging as a more potent leader in buyer agency and making good on its commitments to membership.”

Barry L. Nystedt, MCBA, CEBA – Buyer Brokerage Realty, Newton Massachusetts–

Final Note:

My experience with this organization has been nothing short of a disappointment. I am relieved to be at the end of a most dissatisfying affiliation. With this thought in mind, I now speak to my non-member EBA colleagues…

You are better off investing your hard-earned $300 into your marketing budget, while remaining true to the advancement of exclusive buyer agency in the real estate industry.

Buyer Beware: NWMLS Form 41A “Buyer Agency Agreement”

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This is a boiler plate form commonly used by most members of the NWMLS. This includes most real estate professionals in the Greater Puget Sound. I do not like NWMLS Form 41A, specifically, the second clause because it asks the buyer to consent to dual agency. Why would a buyer agree to such a thing, when hundreds of thousands of dollars are at stake? Real estate is not a small ticket item. Real estate is a significant purchase with no room for imposed risks, such as, those risks imposed by Form 41A. Dual agency is a conflict of interest that should be avoided.

Here is the language contained in clause #2 of NWMLS 41A:

"Buyer agrees that if Broker locates a property that is listed by one of Broker‘s salespersons other than Agent, then Buyer consents to Broker acting as a dual agent. Buyer further agrees that if Broker locates a property listed by Agent then Buyer consents to Agent and Broker acting as dual agents."

It is unwise for buyers to consent to dual agency in any sense, because it is a conflict of interest. A well-informed buyer would be wise to draw a line through this language.

Our company does not use this form.

Does Agency Really Matter?

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Buyers are best served by exclusive buyer agents and brokers. These dedicated buyer advocates do not take listings. They help buyers avoid Dual Agency, which is a conflict of interest. For example, a buyer finds a property listed with their agent‘s company, the property is listed with a different agent within the same company, the company becomes a Dual Agent.

Dual agency becomes a problem when issues arise between buyer and seller. The company cannot fully go to bat for either side, because dual agents are required by law to remain neutral to both parties. Since problems can and do arise between buyers and sellers, it is better for buyers to eliminate the possiblity of such conflicts of interest before stepping into the market. Engaging the services of an experienced exclusive buyer‘s agent is a good way for buyers to avoid dual agency and its inherent risks.

As the general public becomes more aware of these risks, we will see more buyers come to know and understand the value of buyer agency agreements; especially, exclusive buyer agency agreements, which is used to engage the services of an exclusive buyer agent (EBA).

Family Heirloom Causes Static Between Buyer and Seller

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I found a very interesting situation described in a Cabo San Lucas real estate blog. It is a fine example of why it is important to clearly spell out what is included in the purchase price of a home. Included items should be listed in a purchase agreement, as part of the sale.

Read about what happened…

“Our friends sold their home for full price and moved out a few days before closing.

The next day they received an angry call from the selling agent telling them that they had to bring a mirror back before the sale would close. When the home buyers did their final walk through, they refused to make their down payment because a large mirror had been taken down.

This mirror, an antique family heirloom, was never considered by the sellers as part of the sale. The seller refused to give her grandmother’s mirror back.

However, their sales contract, a standard Home Purchase Contract with Terms and Conditions, included all attachments. The mirror was considered by the buyers and their agent as part of the sale. “

Source link:

In conclusion…

When a certain item is not specifically listed in the Purchase and Sale Agreement, then it should not be considered part of the sale. This term should be mutually agreed upon in writing during negotiations. This will prevent static from developing in the first place, because everything is agreed to up front.

Buyers should be conscious of items they would like to negotiate for, during a showing appointment, and include a list of these items in the purchase offer. If a seller agrees to include the items, then they will have the opportunity to say so in writing.

Little things like this, makes a knowledgeable real estate consultant valuable to real estate consumers.

Troublesome News from Arizona

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With new real estate agents entering the field in record numbers across the country, it becomes ever so important to establish a hiring process; regardless if you are a buyer or seller. Washington State brokers are required to supervise their agents, associate brokers, and managing brokers; but, sometimes the supervision is not adequate.

Read more about what happened in Arizona…

Troublesome news from Arizona:

“Complaints against real estate agents are on the rise, with consumers accusing them of everything from selling property without a license to cutting corners to make a sale.

As of June, the number of complaints opened with the Arizona Department of Real Estate had jumped 53 percent since 2003, the year before the housing boom took the Valley by storm. Complaints forwarded for discipline increased 150 percent in that same time.
More consumers are not only griping about the way they have been treated, but they’re also alleging they have lost money in real estate deals. Agents found in violation of state laws that govern license holders can wind up paying fines or having their licenses suspended or revoked.

Part of the spike in complaints reflects the rush of new agents who flooded the market to take advantage of the housing boom of 2004 and 2005. The number of new brokers and agents rose 38 percent in the past three years, well behind the pace of complaints.

The housing market fizzled this year as rising prices and more inventory kept buyers on the sidelines. When the market was hot, complaints were driven by the intense competition to get listings and make sales, said Tom Adams, director of regulation for the state real estate department, which oversees licensing and investigates complaints” (

Source Link:

Final note:

Buyers, as well as sellers, need to have a hiring process that includes interviewing with a few good real estate professionals. The biggest mistake I see people make time and again, is that they start working with the first buyer or seller agent they encounter. A practical hiring process will separate the real estate professionals with experience from those without experience.

Aside from determining skill level, having a hiring process also gives people the opportunity to become familiar with a consultant’s character and personality. Not all personalities can work together, so this is another important factor to consider when interviewing with real estate professionals. Ask questions and pay attention to how your questions are answered.

Real estate investment and development. WA Contractor Lic# WORLDWI852BM