In a widely cited interview, Paul Dales of Capital Economics noted, “Home sales were eye-wateringly weak in July.” (CNNMoney.com, August 24, 2010).  The fear that housing is hampering the general economic recovery is now widespread.  More observers worry not only about a double-dip recession but increasingly, a move toward the “D” word … (Depression).

What’s been going on in Pennsylvania? 

While we don’t have July sales data yet, we can show results for the previous several months.  At the beginning of 2010, for a majority of the reporting regions, sales activities were down, however, sales uniformly picked up in the second, third and fourth months.

For all Pennsylvania regions, there were almost 65 percent more transactions in February than during the previous month and activity continued throughout the quarter and beyond.  The monthly results in the second quarter were very strong statewide. By June, all regions had significantly higher sales (except Adams, where sales had increased earlier). 

While there is seasonality in the data coming out of winter, it is clear that Pennsylvania buyers were responding to the home-buyer tax credit during the first and second quarters of 2010. Table 2 shows the same phenomena.

What can we conclude?

Both the monthly and quarterly transaction data showed robust responses to the tax credits.  In the monthly series, all regions had very large percentage increases in February and these continued (although at a declining rate) into May. Data for June picked up in many regions, most likely stemming from seasonality and the expiring credits. The tax credit impact significantly elevated the 2009 annual results.

Most commentators predict slower third and fourth quarters in 2010 without the tax credits in place. In fact, the very recent evidence surprised most analysts by its magnitude (i.e., the sales declines were about twice what was expected).  Buyers were motivated to accelerate their purchases to qualify for the federal money and the fear was that there would be a significant decline when the tax credit sales expired. These fears have now been realized.

The next few months are being watched closely. Markets are expected to be weak (i.e., sales and prices may decline further).  Housing demand is largely absent — or at best, dormant — and inventories are large (12 months or more) and likely to grow in the months ahead.

We are in for a rough several months nationally as well as in Pennsylvania.

Cafe office in Bucks County

Changing to a “virtual office” seems like a dramatic change but it basically takes advantage of new technology.

Coldwell Banker Hearthside, REALTORS® started a “virtual office” for agents in its Malvern location several weeks ago. The goal of this pilot project is to reduce the office’s overhead costs and eliminate the need for agents to be in the office.

Agents are no longer married to an office. Nearly everything they need to do business is available to them online and the phone system routes calls directly to them. If an agent needs to go to a physical office, they can use any of Hearthside’s 19 locations.

REALTOR® Lori Vanderbilt had her first settlement since the office changed. She finds people are actually more accessible.  “It feels like we’re ‘virtually’ surrounded by people because we’re able to get a hold of someone 24/7,” she added.

Communications between agents has increased despite the reduced hours in the office, according to Chris Beadling, Coldwell Banker Hearthside vice president. “Our agents used to talk when they were in the office for a meeting but now that they have Skype available to them and they’re talking to each other more.”

Floor or opportunity time where agents need to be in the office has gone down nearly 100 percent because calls are forwarded to them, Beadling said. “We followed NAR’s research about what buyers are doing and where they’re coming from. They’re using the Internet more and they don’t know whether an agent is in an office or at Starbucks when they answer a call.”

Chuck Barbera, a REALTOR® for about a year, sees the virtual office as a win-win solution for everyone involved. He said, “For agents, things are faster with the new technology. The broker/owner is reducing his overhead costs and our buyers and sellers are gaining more attention, efficient results and hopefully they having a better experience with us.”

Beadling said the transition to the virtual office has been smooth because as a company, the office decided two years ago that it would train its agents to work with emerging technology. “We have someone within the company who provides in-house training for our agents and has brought them to a different level,” Beadling said. “Our agents have embraced the change our technology expert Stefanie Hahn has brought and they’re excited to leverage the technology to improve their business.”

Pam Sheehan, associate broker/manager, said the agents like the change. “We’re thrilled with how well everyone has adapted to the change. In a recent meeting everyone agreed that the change was seamless, especially to our clients.”

The company also launched a café office in Bucks County three months ago. The office offers free wireless Internet service and coffee to anyone who stops by and the office is gaining popularity within the community. Coldwell Banker downsized the office from 4,500 square feet at its previous location to open a new location with 1,400 square feet.

“The agents feel the office is more inviting to clients,” Beadling said. “It does have its challenges since the audience is always mixed and you have to be very aware of privacy issues. We’ve worked to develop open and closed wireless connections so we don’t have security issues.”

Within the Coldwell Banker brand, West Coast offices have transitioned to similar virtual offices and café locations.

Local and national news organizations including National Public Radio’s (NPR) All Things Considered, CBS’s Moneywatch, Associated Press (AP) and Bloomberg Business Week ran stories on the study results.  The story ran in more than 60 local newspapers, radio and television stations, industry blogs and online news sites.

The study was picked up by so many news organizations because the topic is so timely and important, said Thea Hocker, PAR director of marketing and communications. “It’s a testament to PAR that our research is being covered by national media,” she said, adding, “The findings were important enough to warrant telling the story across the country.”

The research showed that job loss and unexpected medical bills topped the reasons contributing to home foreclosures in Pennsylvania. In the past, many blamed subprime lending as the primary culprit in foreclosures.

“This study is significant because it gives voice to those most affected by the foreclosure crisis. It represents a significant number of Pennsylvanians who have personally experienced foreclosure in some way,” said Joel Searby, SGS pollster.  SGS interviewed 500 people across the state who encountered home foreclosure in the past 12 months and another 500 people who live in neighborhoods where home losses were steep.

Jim Goldsmith, Esq.

Do you need to report a request for mediation to your errors and omissions (E&O) insurer? 

Consider the case of the Pennsylvania broker who received a request for mediation which claimed that the seller and listing broker had misrepresented the condition of an on-site sewage disposal system. The broker was little concerned because he had no knowledge of any defects of the system. He didn’t understand that he was being named as a respondent and not merely a witness to the mediation process. He didn’t notify his E&O insurer of the request for mediation.

The buyer submitted convincing evidence that the septic system could not be replaced with anything but a holding tank that would require monthly pumping and that, according to the buyers, diminished the market value of the property. Further, they introduced evidence in the form of written materials provided by the listing broker that tended to suggest his prior knowledge of system defects.

While mediation resolves about 85 percent of all claims, this mediation conference was a disaster!  Within days suit was filed.  The broker immediately notified his E&O insurer. The insurer took note of an allegation in the complaint that the buyers exhausted their obligation to mediate. It was because of this allegation that the insurer learned that a request for mediation had been filed months earlier. The insurer claimed lack of timely notice and has refused to defend and indemnify the broker. The broker has now spent well over $10,000 in his defense and remains potentially liable for damages. The broker has sued his E&O insurer, claiming that the lack of notice did not prejudice the insurer. This essentially means that despite the lack of notice, no defense was lost and no harm was committed. 

The outcome of this suit is months away.  If the broker wins this, he will have insurance coverage and will recover fees expended in his claim against the insurer. If the broker loses, he is out in both suits and still faces a potential jury award.

The message is obvious. All E&O policies have a notice of claims provision. Brokers know that when served with a court-filed complaint, notice to the insurer must quickly follow, however, all claims received in writing or threatened should be reported to the E&O insurer if one wishes to preserve coverage. “Claims” should be construed broadly to include requests for mediation and, in my opinion, claims of ethics violations which not infrequently turn into lawsuits on the related facts.

I represent both insured and uninsured brokers and make these very simple observations: Brokers who are insured for the claims they are defending sleep at night.  Those who do not lose sleep, suffer great anxiety and spend many times the amount of their deductible.  The increase in an insurance premium caused by reporting a small, frivolous suit that is quickly disposed of pales in comparison to the great sums that you may face by not reporting a claim.  Further, what seems to be a small claim at first blush will frequently turn into complex litigation.

If you are a salesperson who is threatened with a claim, by all means implore your broker to notify the E&O insurer. If the broker refuses, seek counsel who can advise you of the manner by which you may preserve the insurance coverage you have paid for.  You and your broker will be grateful in the long run.

National Association of REALTORS® (NAR) Associate Counsel Katie Raynolds said a social media policy provides a guideline for employees and agents so they know how the company expects them to represent themselves and the firm online. “A social media policy should remind everyone that state license laws should be followed — even online — and NAR’s Code of Ethics applied as well,” she added.

The policy can be as simple or as detailed as the broker wants. NAR’s Risk Management Committee recently drafted a model policy for brokers to use as an example in their own offices.

“It’s totally up to the brokerage what guidelines they want and how they decide to manage their image and reputation online,” Raynolds said. “Most social media policies are general, reminding agents not to discriminate, not to make disparaging remarks, not to reveal clients’ personal information and what the consequences are in the event you don’t abide by the policy,” she said.

As the popularity of social media continues to grow among consumers, real estate agents increasingly use various social media venues. Todd Carpenter, NAR manager of Social Media, said, “REALTORS® recognize the potential to increase their sphere of influence through social media and are adapting to these networks unlike any other profession. Social media is popular because it’s affordable marketing.”

Carpenter agrees that a social media policy helps alleviate potential mistakes. “Social media policies are good to have in place so people don’t make mistakes. They know what they’re doing ahead of time,” he added.

Jim Crawford, a REALTOR® and an online real estate tech/web coach in Georgia, thinks many brokers are ignoring potential problems by not creating a social media policy.

“Many agents don’t understand that if their online presence mentions real estate, they should watch what they’re saying and they must follow their state real estate commission’s advertising guidelines,” Crawford said.

Crawford believes many brokers are unaware of what agents may be posting online. “Brokers are supposed to review their agents’ advertising but many don’t know what their agents are saying online. If an agent is bad-mouthing a client or asking what he should do because he’s in trouble, there’s a permanent record online. The agent is liable for what he wrote and the broker may be liable as well,” he added.

 “The connection between the broker, what his agents do online and his liability will eventually be determined by the court,” Raynolds said. “But having a clear policy, informing everyone in the office you have a policy and educating them about the policy will go a long way in risk management for the broker.”

Joeann Fossland

Testimonials build credibility in the real estate market; the difference is how to use them in today’s market.

“It’s a well-known fact that third-party endorsements raise your credibility,” said Joeann Fossland, a national speaker and coach based in Arizona.

“Stop thinking of testimonials as pull-out quotes. Consumers are shopping for homes online, so you need to think of new ways to make those testimonials work on websites and in social media,” Fossland said. “People using social media are asking their friends to recommend everything from restaurants, recipes and other information.”

Take a Flip video camera to closings is one way to record recommendations. “Clients are never happier than they are at closing,” she said. “Record your clients’ answers to: ‘How did the closing go?’ ‘How did I make the process easier?’ ‘Would you recommend me in the future?’ Then post different clips on LinkedIn, Facebook and your website.”

Only 14 percent of consumers trust advertising, while 86 percent trust recommendations from friends, Fossland noted from a recent survey.

To improve business, Fossland suggested six tips:

• Listen for the testimonial. When a client says something great about you, don’t hesitate to ask if you can use it in your marketing.

• Post video testimonials on YouTube.

• Create a page on your website with the videos or comments from clients. Include a photo of the client with a quote.

• Post testimonials throughout your website. Use a testimonial at the top of each page.

• Provide a recommendation for someone on LinkedIn. Then ask them to do the same for you. Eighty-five percent of Fortune 500 companies research other companies on LinkedIn.

• Touch base with past clients. Contact your past clients and ask them for a testimonial. Make it a goal to collect five testimonials a week from previous clients.

Relationships account for 54 percent of a seller’s choice of an agent and 64 percent of a buyer’s choice, according to 2009 NAR Profile of Home Buyers and Sellers.

“It’s tough out there today,” Fossland added. “You have past clients who love and respect you. Their testimonials provide the personal recommendation new clients are looking for.”

Editor’s note: The Federal Trade Commission (FTC) issued new regulations regarding testimonials last year. It’s a good idea to review these regulations prior to publishing testimonials.

But recent changes in lending practices as well as strict qualifying criteria challenge some multicultural homebuyers, especially given limited credit history, non-traditional sources of income such as part-time jobs and cultural aversions to debt and credit.

Carefully managing the multicultural homebuyer’s loan process is a great way for REALTORS^® to grow an often overlooked customer segment.  Brokers who have been successful in servicing multicultural homebuyers found demonstrating trust and carefully facilitating the entire transactional process as sound best practices when working with multicultural homebuyers. 

Multicultural homebuyers look to the REALTOR^® as an advisor throughout the transaction.  Many REALTORS^® have reported that transactions were lost when multicultural homebuyers were mistakenly placed with lenders who did not understand the cultural and language nuances.  For example, lenders not being aware that a down payment gifted from extended family overseas is a norm or that not addressing elder members of the family first during the loan process are a few cultural missteps that can result in lost clients and commissions.  Some real estate brokerages solve such problems by having in-house lending services that supply the cultural expertise required by the multicultural consumer.

It’s important that REALTORS® remain engaged with multicultural homebuyers during the loan process. Many such consumers see the home-buying process — including lending, survey, inspection and appraisal — as being one and the same and will look to the REALTOR® to guide them through the transaction.  These buyers expect REALTORS^® to handle the transaction from beginning to end; the mortgage lender is generally viewed as an extension of the REALTOR®’s service. 

Not monitoring the progress of the transaction or not providing updates to a multicultural homebuyer can be viewed as abandonment of the relationship.  In cultures where relationships come before business, this can be costly and result in lost referrals.

The best advice to REALTORS® who want to expand their services to include this growing segment of the home-buying population is this: partner with a lender who understands the needs of the multicultural consumer. Make sure they have the services and committed team that shares in your professional goal of expanding your customer base.

FHA will offer the new FHA-insured mortgage to certain “underwater” non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage.

This and other programs that have been put in place will help the administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

“This is an exciting new program that could help keep more people in their homes,” said David McCarraher, senior account liaison, for the FHA Office of Single Family Housing in Philadelphia.

“This is an incentive for borrowers who have been making the mortgage payments but their home isn’t worth what they owe on the mortgage,” McCarraher explained. “These homeowners are having trouble refinancing with better rates because they don’t have any equity in their home. We’re encouraging lenders to participate in the program and the U.S. Treasury Department will provide incentives to existing second lien holders as well.”

FHA Commissioner David H. Stevens said, “We’re throwing a lifeline out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined. This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

FHA’s mortgagee letter explains how lenders can implement this new enhancement.  Participation is voluntary and requires the consent of all lien holders.  To be eligible, homeowners must:

• Owe more on their mortgage than their home is worth
• Be current on their existing mortgage payments
• Have a credit score of at least 500
• House must be primary residence
• First lien holder must agree to write off at least 10 percent of unpaid principal balance.

FHA’s goal is to give underwater borrowers payment relief that is safe, to help them stay in their homes and to benefit communities impacted by lower values.

For more information on FHA Short Refinance option, read FHA’s mortgagee letter and the accompanying fact sheet. REALTORS® can also contact the FHA Resource Center at 800-225-5342.

“As an industry, we often don’t think about what the consumer wants,” Wilson said. “NAR’s research shows that the average REALTOR® is 45 years and older. The average homebuyer is 45 and younger. This is causing some disconnect.”

For example, Wilson notes that many younger clients don’t expect REALTORS® to research homes for them. “They do, however, expect instant responsiveness from their REALTOR® so returning phone calls or e-mails at the end of the day isn’t going to cut it,” she said.

Today’s average client expects REALTORS® to e-mail them or provide them online access to the contracts, reports and disclosure documents. “They like transparency and taking transaction management paperless is key,” she added.

REALTOR® online reviews are becoming more popular as well. “Many agents are insecure about what clients will say about them but referrals are how we get business. You work hard to build a strong reputation and it’s important that the industry begins to realize that online reviews are happening whether we want them to or not,” Wilson noted. “It’s a matter of whether we control the process or continue to give it away to third parties.”

Garnering younger consumers takes education, not advertising. “Instead of telling consumers you have 35 years of expertise, share your expertise,” she said.

Wilson said other changes include:

• Push marketing is out. Success today is related to “pull” or “attraction” marketing. You should be attracting clients to you by educating them on the local real estate market and demonstrating your expertise rather by advertising or broadcasting how great you are.
• Performance transparency. What you do and the service you provide will be discussed openly on the Internet.
• Today’s customers expect you to be there all the time. Mobile applications make this possible and necessary.
• More companies will go virtual.  The industry will continue to see a decrease in the need for big brick-and-mortar operations.
• Transaction processing will continue to grow more efficient.  Transaction management platforms, online forms and tablet computers will make paperless transactions the norm.

Fueled by rising prices, some cities –  Atlanta, Houston and Phoenix — grew without limit. Yes, some regions of the country rebelled against such “sprawling” subdivisions and their attendant strip malls. But continuing subsidies for home ownership and the myth of fabulous returns to housing as an investment fueled the continuous expansion of suburban America.  “Trading up” and more recently, “flipping” houses became the norm. HGTV is alive and well on cable television even now.

Now I am not one to lament that the population should have been required to live within the traditional boundaries of America’s older cities. Nor am I sympathetic to the repeated propositions from those who claim that Americans should give up their cars for bus or train passes. The cultural values of the urban-built environment have enabled American citizenry to obtain and maintain the best housing stock in the world. Certainly, immigrants to the U.S. view access to quality housing as a real dream: it is one of the most important features of life here.  Despite housing problems in many cities for the poor and working class groups (often made worse by restrictive land use controls), the availability and development of residential space throughout the nation is something of which we can rightfully be proud.

But in the post-housing bubble (after 2007), there is a new debate arising: will the future lead to a continuation of urban decentralization with the re-population of distant, new subdivisions (so-called “McMansions”)? Or will declining prices at the center of cities lead to a return to “downtown living,” often in the form of upscale condominiums where central land values are sufficiently expensive that development must go “up” rather than “out?”

In one corner are those such as the Urban Land Institute (ULI), which predicts that while the recovery of the housing market will take place throughout urban space, there will be a   “reurbanizing” of the American suburbs. In a well-done report I wrote on recently, ULI predicts that cities will undergo dramatic changes as a result of the current housing crisis. There are expected to be fundamental differences between the population cohorts: Baby Boomers, Generation X, Generation Y and others.  Many will be stuck in their suburban McMansions due to negative equity or limited new construction options.  Those with less income may be sent to distant subdivisions where there will be plenty of foreclosed choices at good prices but longer-than-hoped-for commutes.

On the other hand, “pundits, planners, and urban visionaries … have been predicting for years that America’s love affair with the suburbs will soon be over,” notes Joel Kotkin, a well-known housing expert, in a recent story in the Wall Street Journal (July 6, 2010).  But he fails to see evidence of a return to city centers and cites a host of evidence to support his doubts. One of the main problems is the over-building of condominiums in many of America’s large cities. He notes that in Miami, a city of extensive urban redevelopment, condo prices are down 75 percent from their peak, while single-family homes are off 50 percent. In Los Angeles, house prices have risen about 10 percent over the past year but condo prices are said to be off 18 percent. In Las Vegas, there is a condo inventory of 21 years!  The reason for these differences, according to Kotkin, is a fundamental misunderstanding of household preferences.

So, as with other conceptual disputes, there are competing visions for the future. Cities are complicated organisms to be sure and they take different forms at various times. There is much at stake for households, neighborhoods, communities, cities, suburbs and the entire real estate profession. Alas, life would be so much simpler if we could just predict the future.