Thursday, December 08, 2005

Concerning the Marin Real Estate Industry

I have received a tremendous volume of email from readers of this blog. Thank you for all your kind words. I am so relieved that this blog provides some service to our community. Our COMMUNITY!

Quite a few of the emails I received were from Marin realtors or ex-Marin realtors who have said some rather surprising things (some being "jaw-dropping" and "eye-popping") about that industry. Instead of quoting excerpts from those emails and given the recent increase in reader participation, I am opening up this post to anyone who has anything they want to say about the Marin real estate industry. "Insiders" are strongly encouraged to participate.

Topics of interest include, but are not limited to, industry practices, realtor personalities, realtor qualifications, the sorts of loans the typical Marin buyers take out these days vs. days past, the typical motivation of Marin buyers (e.g., the frequency of those buying to live in a home, raise a family, etc. vs. buying to invest), etc. I leave it up to you the direction taken in this thread. I hope you will participate as I know there is a lot of interesting information in your collective heads. Basically, I am looking for any information that will shed light on Marin's real estate market vis-à-vis the industry itself.

This topic is something of an "experiment" for me as a new blogger.

Rule 1: Play fair, play nice, be truthful.

Rule 2: Do not refer to anyone or any organization by name or by any means of identification. Doing so will get your post deleted.

20 Comments:

Anonymous Anonymous said...

Oh, please share. Spill your guts! Enquiring minds want to know.

Dec 8, 2005, 11:44:00 AM  
Anonymous Anonymous said...

Yes, please spill. Make our eyes pop! AFB posed a similar question and the readers wanted more stories.

x

Dec 8, 2005, 3:01:00 PM  
Blogger Marinite said...

Well, I was emailed remarks like 80% of all Marin loans were of the exotic type. Some realtors wrote in describing the industry in Marin as "sleazy", "back stabbing", "egotistical", "greedy", "fueled by insanity for their own gain", "over paid", "requires no qualifications other than an ability to lie with a straight face". Others wrote that they thought the dot come mindset infected the real estate biz and that they try to give their buyers and sellers a "dose of reality". Still others wrote about deliberately messing with the appraisal process so as to jack up prices, realtors selling to each other like priced houses so as to keep the comps up.

But I would rather that the folks who wrote all that write it here for themselves and go into the gory detail.

Dec 8, 2005, 5:20:00 PM  
Blogger marin_explorer said...

realtors selling to each other like priced houses so as to keep the comps up.

If I'm not mistaken, isn't that particular practice somewhat illegal? Of course, any pros out there can clarify.

Dec 8, 2005, 5:25:00 PM  
Blogger Marinite said...

If I'm not mistaken, isn't that particular practice somewhat illegal? Of course, any pros out there can clarify.

One would hope so! Sheesh!

Dec 8, 2005, 5:27:00 PM  
Anonymous Anonymous said...

If not prima-facie illegal, certainly actionable in a civil court in all possibility. Most likely a way to get one's license stripped.

Dec 8, 2005, 5:30:00 PM  
Blogger Marinite said...

Is it the selling from one realtor to another that is illegal (or should be) or is it the intent that makes it illegal? If it is the intent, then I would think it would be difficult to prove and so maybe that's why some get away with it.

Dec 8, 2005, 5:34:00 PM  
Anonymous Anonymous said...

I would think intent, action, and then damages. That is hard to prove and it would need to be pretty linear in showing that these actions were taken directly to change a deal the plaintiff had and is proving which caused damages (i.e. faked market force).

I am sure an expert in this area could take that further... I am speculating.

Dec 8, 2005, 5:44:00 PM  
Anonymous Anonymous said...

I have been looking at some property. It had a contract on it and was in escrow...... The agent wanted me to be a "backup" buyer with a contract in hand because this property was bound to sell fast the agent said. But then I learned that for the person who had it in escrow the price had been lowered about $500,000 on the property... listed in MARCH, 2005..... and they were attempting creative financing and other wacky things AND TODAY I was informed that it dropped out of excrow......OH MY! and then I was contacted by the agent...... What should I do? Negotiate HARD? ..... or play hard to get........... Now I am starting to have fun as I finally have a BUYER'S MARKET>>>>>>>>>> WHOOPEE!

Dec 8, 2005, 7:45:00 PM  
Anonymous caddis said...

I would wait four years before I'll buy here in Marin. At 15% affordability as a state. Historically the market is going to change and will continue to drop for another four to six years. This time it could be worse, our interest rates are lower than they were when California was in this position.

Dec 9, 2005, 8:32:00 AM  
Blogger hemorrhoidforhousing said...

I know I'm from outside Marin, but in my neighborhood in Pleasanton there is a couple who are older and more establish RE Agents that leave flyers on our doorstep once a month. I thought quoting the first paragraph from this months flyer is relevant to the entire Bay Area:

"The real estate market has slowed as it normally does this time of year. It will probably be a lot slower next year; the run-up in prices just cannot be sustained."

Dec 9, 2005, 9:23:00 AM  
Anonymous Silver said...

Agree. My friend's friend bought several depressed properties in Los Angeles, Orange County, San Diego, and Texas during the S&L crisis. He paid something like $10 per squre footage of a building in Long Beach from the government auction. Now he has accumulated about $40 million wealth. He was a salary man before getting into this business.

So if the same cycle applies, we might be seeing a very good buying opportunity in the next 4-5 years.

As for this gentleman, he has stopped buying properties in this country for the last 2 years. He has turned his attention to Aisa, especially China. I guess the "smart" money is going oveseas now.

Dec 9, 2005, 9:36:00 AM  
Blogger Karen said...

Okay, this isn't officially about the Marin market, but I think it's a good illustration of your concerns, so bear with me.

When we sold my home in the county north of you, a Latino family made an offer that was so ridiculously over list that we balked. They were desperate for the house and wrote a heart-wrenching letter to us about how they had been out-bid on house after house.

We looked at their financials carefully. I don't remember the details, but it was obvious that they were getting in over their heads. I couldn't do it, despite the dollar signs they were waving in front of us. But what really disgusted me was when our Realtor explained that even though their offer was well above a legitimate appraisal, she was sure that their agent would help them find someone who could make it work. She saw it all the time, and it made her just as heartsick as it made us. We turned them down and sold to someone in slightly (and I use the term loosely) better financial shape. Unfortunately, I'm sure that desperate family did eventually find a seller who didn't care to go along with their unethical lender.

We like to give agents a hard time around here, but there are a few good ones. Fortunately, we hired one.

Dec 9, 2005, 10:11:00 AM  
Anonymous rejunkie said...

Karen-

Your actions are admirable, as are your realtors. Most realtor depend heavily on referrals and reputation and I would hope most would do the same. However, don't forget appraisers have a hand in this. When buying a condo 3 years ago in Novato for 28k over asking, I was told, after expressing my concerns about setting the new high mark for the development, "Don't worry, it always appraises".

Have you ever noticed, that 99% of the time, the property you buy appraises for EXACTLY what you are paying for it? Not $1 more, nor seldom less. The appraisal business is in bad need of an overhaul, IMO.

Dec 9, 2005, 3:58:00 PM  
Anonymous rejunkie said...

Anonymous (the one with fortunate position of buying in a buyers market)-

I would be careful negotiating too hard. If you are prepared to take it or leave it, by all means, take your best shot. But if you really like the place, and it meets your needs, I would offer something "fair" (however that is defined here). The seller can always say no and it will probably leave a bad taste in their mouth should you choose to come back to the negotiating table.

This transaction is heavily dependent on trust between the two parties and good faith execution on both sides. If you appear to be taking advantage of this, the seller could make life difficult when you are in escrow.

This is no different from the extreme sellers marketing where unscrupulous sellers were playing one party off the other to encourage a bidding war. Nobody likes to be taken advantage of.

This is where the value of being represented by a realtor is key and where they earn their commission, as it is their role to come up with a compelling offer.

Don't forget to negotiate other things besides price too, such as:

-Seller financing
-Ask for more repairs or upgrades
-Longer or shorter escrow to meet your needs
-Rent back (if they need it)
-Fixtures and furnishings (people assume you don't want it -- you get $1000s in free stuff just for the asking)

Dec 9, 2005, 4:30:00 PM  
Anonymous Anonymous said...

rejunkie,

I agree with you.

However, I do see there are two types of people are buying the real estate. One type of people are buying for their own residences, called homes. The other type of people are strictly investors. Right now it is more investing and speculating than just purely buying for one's needs. When this happens, average people could not afford buying their homes while speculators shoot up the prices, make money and leave. This usually brings more harms than goods to a community.

As for an investor, this is not the right time to buy but sell.

Dec 9, 2005, 5:27:00 PM  
Anonymous rejunkie said...

Anonymous, I am an investor, NOT a speculator, as I think there is a distinction between these two types of people.

Investors buy and hold for the long term for both income and capital appreciation, are interested in preserving the value of their asset, are financially responsible and are providing a service to the community in the form of rental property.

For me, this is my retirement plan, my IRA, if you like. Just as many people invest in stock for capital gain and income, I do likewise in real estate. I don't think there is anything wrong with that nor particularly damaging to a community. I have reasonable expectations for rental growth and capital appreciation (disappointed on the former, surprised on the upside by the latter)

I have bought 4 homes in Marin and sold 1 in 8 years.

A speculator acquires an asset without doing their homework, with no long term plan, and unreasonable expectations of how it may perform and in RE, is not interested in providing a community service and is betting that that the cap gains exceed any negative cash flow or carrying costs they may otherwise incur.

The tax consequences for selling investment property are much more severe than with your own residence so there is larger barrier to exit, even more severe if you buy and sell within 18 months as it is taxed as regular income. In contemplating flipping a property once, I calculated I need to see a 15-20% margin between buying and selling (over a period of 3 months) to make it worth the taxes and commissions. That is very difficult to pull off in Marin.

Since selling has a hefty tax consequence (15% fed, 9.3% state) and a 5-6% commission plus closing costs, you have to figure the market is really going to tank (in an unprecedented fashion) to sell without doing a 1031. It is much less painful to sell owner-occupied property. consequently, I truly don't think there is alot of speculation here but if you have stats to prove otherwise (I don't it is just my gut and what the CA stats indicate) , please share.

As an investor, I think this is a good time to hold, not sell.

Dec 9, 2005, 6:00:00 PM  
Anonymous Anonymous said...

I have to totally agree with anonymous (and disagree with rejunkie) as according to rejunkie's logic it would never be a good time to sell -- a down market is a good time to hold (to avoid taking a hit), and an up market is a good time to hold (to avoid missing higher appreciation).

Dec 10, 2005, 12:36:00 PM  
Anonymous rejunkie said...

Anonymous-

I am not sure where I indicated an up market is a good time to hold. Actually, a good time to buy has little to do with whether the market is up or down as it is actually when rent/price ratios are relatively low. For instance, when I bought my first rental in 1997 for $200k, it rented for $1400/month ($16,800 a year) for a PE of 12. For Marin, that is relatively low and after taxes, it was breakeven on cashflow. I just sold it last summer for $530k and it currently rents for $1800 ($21600/year) putting the PE at 25 which is the worst it has been in Marin in at least the past 30 years. 1997 was a good time to buy, as was any time up until around 2001 (because rents were rising in lockstep with property appreciation, more or less). I bought again in 2002, in an up year for the market, but at a worse PE. I am saying to hold today because the cap gains are probably modest for the next few years and the PE is at an all time high -- by all means put your money in the stock market if you have some spare. I think investing in real estate today is a poor choice, but that does not mean that if you have it already you should sell.

My point in holding as opposed to selling is that historically (as in the past 30 years) there has never been a real need to sell in Marin because as the old adage goes, the top of this cycle is the bottom of the next. You would want to sell if you are in one of the following three boats:
1. You cannot afford the carrying costs of owning and maintaining rental properties.
2. You don't want to be a landlord.
3. You think that the market will tank so much that it will be better to take the hit and get out.

As an example of #3, I sold the aforementioned condo for $530k last summer (and did a 1031 exchange, so I was not cashing out and paid no taxes to do this). Had I just cashed out, I would have paid a $27k commission, $77k for the taxes (based on my depreciated purchase price of $180k) and let's say 4k in closing resulting in a net of $422k. As an investor you have to bet that the market will fall %20 (which is why I said it would be unprecedented) for this to be a smart idea. If you just look at the tax hit (assuming, as in my case, you had to pay commissions and closing anyway) you are still hoping for a 15% loss to offset that tax bill (77k/530k). Not likely, even now.

It is analagous to day trading in the stock market -- back in 1999-2000, day traders would rack up huge transaction fees because of the churn in their portfolios and in most cases, underperformed the market as a whole -- they were called speculators. When the market tanked after 9/11 and the Dow plummeted to 7000s, I held, because I know this condition was temporary. Buy and hold is always the best way to invest ( as opposed to speculation), whether stocks or houses. The current markets softness is temporary and prices will eventually resume their upward march.

Dec 13, 2005, 7:46:00 AM  
Anonymous rejunkie said...

I should also add, that with PE's at an all time high and market going soft, I would expect this condition to put upward pressure on rents for the next few years, so this is a great time to continue renting and lock in a long-term lease.

Dec 13, 2005, 7:49:00 AM  

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