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In Grand Rapids, Michigan it's an argument that every real estate agent has heard at least once. In the opinion of most...one time too many. It goes something like this. I'd like to sell my home, but I need (X) amount from it. I know that you are recommending I list my home for 10 ~15 % Less than (X) but I figure that if buyers are interested, they will make an offer. I refer to this argument as the decision to Chase Down the Market.

Chasing Down the Market has become a real estate consumer sport. Homeowners gambling with the odds of Selling their home before the market swings further south usually have several options up their sleeves. These include: Lowering the Price of the home, offering incentives to buyers such as 3 months of FREE Mortgage Payments or providing decorating allowances. These are held out like chips to bait potential home buyers.

Sometimes, these gambits work and attract an offer. But, it's usually not the offer that was anticipated or expected. What we are seeing in Grand Rapids, Michigan and across the country is that buyers for homes are remarkably well informed. Incentives are no longer viewed as reasons to purchase. Instead, savvy buyers dig deeper to try to determine WHY Incentives are necessary.

Savvy buyers understand that irregardless of the market, Accurately Priced Homes will Sell even within a challenged market like Grand Rapids, Michigan within 3-4 months.

It's particularly instructive to note that Banks who own a number of Foreclosed homes in the Grand Rapids area right now also understand this. In fact, these banks will often lower their prices several times within a relatively short period of time simply to ensure a quick sale. This tactic has led to an increase in the sales of Bank Owned Homes to a level which is almost 50% of ALL Current Sales in the Grand Rapids area.

The implications of so many foreclosed and short sale homes on the market has had a devastating effect on homeowners who are Chasing the Market Down. Last year, the Grand Rapids Association of Realtors statistics indicated that homeowners who did not sell their homes during the first 5-6 months eventually Sold their homes for an average of 25% Less than the Listing Price. This was in stark contrast to those who through pricing their home properly to reflect the current market usually Sold within 3-5% of the Listing Price.

Thus the Penalty for Chasing the Market Down and Loosing in 2007 was about a 20% Reduction in Net Proceeds. This did not take into account the investment of additional time on the market or the inconvenience of two mortgage payments in some cases. Unfortunately for home owners, playing this game in 2008 will be even more risky.

With foreclosures and short sales on the rise, and a large influx of homes anticipated for Spring Market of 2008, the Grand Rapids real estate market simply does NOT have the elasticity to absorb all these homes for a couple of MAJOR REASONS. The most significant issue is the Lending Crisis which has dried up funds for a large number of potential buyers. Secondly, since many areas of West Michigan have now been designated as Declining Markets, potential buyers are being asked to come up with larger down-payments and sometimes having to pay higher interest rates unless they qualify for a government funded program.

In my view, Chasing Down the Market is a risky gambit. The twists and turns of gambling in this market require a pretty strong constitution...one which many home owners are ill equipped to maintain. The closer your initial asking price is to the Bullseye, the better your chance of obtaining a fair price and the pre-requisite mortgage for a buyer which allows you to move on with your life. Less exciting perhaps...but certainly easier on the stomach wouldn't you say?

Copyright 2008 Audu Real Estate All Rights Reserved

Most of us know Uncle Sam pretty well.  Some of us may be somewhat unfamiliar with with another significant relative in the American monetary landscape...Mr. Fair Isaac. So, here's a quick history lesson. 

Fair Isaac came into being in 1959 as the creation of two brilliant people:  Mr. Bill Fair who was an engineer and Mr. Earl Isaac, a mathematician.  Together they developed a system which was initially designed to help banks and retail stores to calculate how likely their customers were to pay their bills in a timely fashion.  

It was a brilliant concept.  Based on a closely guarded mathematical formula, a three digit number was assigned to an individual's history of interaction with credit to predict their future spending and payment patterns.  It was financial wizardry at its finest.  Until, the mid 1980's Fair Isaac scores were not used as the major criteria for lending in the housing market.  Mortgage Lenders documented their loans through analyzing a large volume of data about the individual borrower which included: pay stubs, bank balances, tax returns, retirement portfolios, asset portfolio and employment history.

But everything changed when Fair Issac became a public company and subsequently the darling of the banking system when it came to rating a borrowers ability to qualify for a mortgage loan.  According to the latest Business Week Special report of February 2008, in an article entitled "Credit Scores: Not-So-Magic-Numbers,"  1996 marked a huge turning point for American cconsumers when Fannie Mae and Freddie Mac, the largest wholesalers of mortgages  began requiring FICO scores on every loan they bought from lenders.  1996 was the year I became a full-fledged real estate agent.

Back then, we were all trying to figure out what this would mean for our clients.  Some Mortgage reps provided long lists of what could potentially impact a score.  There was some nervousness of how all this would play out in buyers being able to qualify for financing.  This was long before the days of the credit card doctors and the mortgage repair teams.  We were assured that this "magical" score was FAIR and would help alleviate mortgage discrimination.  All would be well.

No one could have imagined what would take place over the next decade and how much would change.  Who could have predicted that the real estate boom would spur such an incredible plethora of mortgage products? Who would have imagined mortgage bundles being sold worldwide in a manner similar to stocks?  The FICO score became the fuel that juiced the twin engines of progress and economic expansion. 

Today, FICO scores are used for more than most people would have ever dreamed about when they were first presented in the public arena.  Did you know that your insurance rate is often determined at least in part by your FICO score?  Your FICO score is also checked by many employers prior to an offer for a job.  Were you aware of the fact that some hospitals have started checking FICO scores prior to admitting patients?

According to this Business Week article, there are some major drawbacks with this expanded use.  Even as FICO scores are being used to determine more and more things about how our lives are lived...they are becoming less accurate.  It is a well know fact that FICO scores can be manipulated.  Entire industries have sprung up to raise the "number"  for consumers who need a higher score to facilitate a home purchase or other financial endeavor.  In addition, it is a widely know fact that the information which is used to create the score is not always complete or true. With fraud on the rise, consumers are encouraged to check their scores at least once a year to review what is in their credit file.

With this in mind...it is disconcerting to see that as the accuracy of the model has decreased, it's use to determine issues as critical as your livelihood or an admission to a hospital for critical care are on the rise.  I find it a little disconcerting to think that while a confrontation with Uncle Sam could cost consumers money...issues with his relative Mr. Fair Isaac might affect your right to receive life giving treatment.  Does that seem right to you?

Copyright 2008 Audu Real Estate  All Rights Reserved

Perhaps the most daunting task facing Multiple Listing Systems (MLS) systems and real estate boards today is issue of Relevancy. It would be misguided to assume that the search of choice for real estate transactions in the future will necessarily be the local real estate MLS. Unless significant changes are made which combine the best features of expertise and professionalism amongst MLS members with the enhancements available through technology today, the industry may find itself sidelined as the destination of choice for professional real estate information.

Today, I came across a Slideshare show by Frank Meeuwsen entitled "Nine Big Ideas of Social Media." Meeuwsen essentially details the movement from the static nature of Presentation to the vital energy engaged through Presence via the use of Social Media. In some ways, the concepts he explores are an interesting way to think about a pathway by which the fairly static medium currently employed by most MLS systems might engage the consumer and create a more dynamic process.

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Here are my thoughts on some real estate applications.

How Social Media Concepts Could Transform the Nature of MLS Search....

Social Media is About:

BEING OPEN: MLS Systems have learned this the hard way. Information is powerful when you're the acknowledged source expert and are willing to share. It is poisonous when perceived to be withheld.

RE-MIXING: MLS Systems will be challenged by their competitors to put information together for the consumer in a way that creates relevance. Sure it's great to know what's for Sale, but it's better to understand the underlying context and implications of that information. Consumers want to know whether a home is a good deal or not. Fear that they will avoid the real estate agent once they get this information is probably unfounded. When a Re-Mix works...the creator or aggregator of the content reaps the benefits. A well-designed MLS system could channel this positive cache towards the benefit of its members.

SHARING: People love to share stuff. The Internet has made this oh so easy. Why don't we take advantage of this? MLS systems could adapt to this trend by making it easy for viewers to share great listings or videos of great listings. How about enabling agents to allow the general public to share their thoughts on a listing? There's a remarkable amount of untapped connectivity hidden within the vast listing data pools residing withinmost MLS systems.

TELLING & LISTENING: Make it easy to talk. MLS systems could incorporate into the their systems options to instant message the agent, create links to agent blogs or websites, connect surfers to an agent's twitter account or download audio blog or recording about the home. MLS systems need to create more avenues for potential clients to interact and engage with agents long before it's transaction time. Social Media is about Relationships. So is selling real estate.

PLAY: Don't be so serious. Yes, real estate is about big business...but before that, it's about homes, families and individuals with diverse tastes and interests. Most MLS systems are incredibly boring places to visit if you're not looking for a specific listing right now. However, an MLS system could capture the mind of the next generation of consumers by creating a complementary site for playing the most fascinating past-time most Americans can't seem to get enough of...Buying, Selling, Fixing, Flipping & Trading Real Estate. Perhaps Second Life....real estate style! (Just kidding)

RELAXING: Goes along with play. Be less stodgy. The average consumer is much more relaxed in their approach to life. As professionals, we could take a lesson from the playbook & relax...just a tad. What about an MLS system in which the neighborhood got together virtually to share what was going on in their community?

LEARNING: Why shouldn't the largest portal of real estate listings in any given area in the United States not also be the best place to learn about homes, landscaping, titlework, re-modelling, design elements, mortgage financing etc.? And why can't this learning take place 24/7 all around the world at our MLS sites?

CO-CREATING: The best idea may be the one you haven't yet heard. If MLS systems enabled direct feed-back from consumers in real time, we might find out ways to improve and enhance the search process in a way that creates a better experience for everyone.

RAVING FANS: Created from the Sum Total & Successful Application of all of the above!

Just curious...Are there MLS systems across the country incorporating any of these elements successfully? I'd love to hear about any experiences you're willing to share. Here's the slideshare show...

Copyright 2008 Audu Real Estate All Rights Reserved