Open House Bunny Hop.

Happy Easter, hope the easter bunny brought you some delicious candy to munch on in these growing hard times.

This weekend I went on a open house bunny hop through Canton and Federal Hill. I have not done this in over a year because of the frustration and arrogance of the Realtors doing these home showings. Nothing makes you want to not buy something when you detect the sleeze of some of these folks.

What a difference a year makes. The 5 places I visited, only 1 realtor made me feel uncomfortable. Everything I looked at was in the 325k-400k range and only one was purchased prior to 2004.

Here are my observations:

1. There was no beating down the door to go through a house. Unlike in years past, there was times I did not even bother because the house looked too crowded. I am guessing nobody else was out looking, in-fact one I got to the door right as she was locking the door as it was 10 minutes before it was to end. She happily took me through it and talked to me for a while and even pointed me at some of her listings to browse. She told me she has been doing 2 open houses a day on Saturday's and Sunday's since the beginning of the year for her listings in a rotating fashion. The others I had the whole house to myself when I arrived. One told me all he had in the 2 weekends of doing an open house on this particular 3/2 with a roof top deck and parking pad was the nosy neighbor listings, something that happens with every open house.


Lesson: Open houses are as much about marketing for the realtor as they are for the house. Most realtors hate them but do them anyway as a way to drum up leads. The realtor described above basically told me everything I needed to know in negotiating. Again most Realtors want the transaction to go through and will help "push" the seller even if it means a stab in the back against what the seller really wants. I imagine realtors among themselves discuss that they know the seller is unrealistic at this time in price and a little sweating on the market will grease the wheels to price it better.

I found out that the seller has decided to move as she wanted to be closer to her job in the county. It was bought in Dec 2005 and she was asking 100k above that price. When I said to the realtor that she's going to be lucky to get what she paid for it in 2005, he just smiled and said that well people need to make an offer. No one wants to make an offer right now. (What he did not know is that I had checked the financing of all places before looking and the seller had bought with 100% financing and has a ARM that is going to go up to 12% after the December 2008 reset.)

2. Everyone loves me. I never felt so wanted in all my life. First every realtor in practice asks if you have a buyers agent. This is normal. When I say no, and tell them that I plan on doing most of any negotiation through my real estate attorney and that I could care less about there commission. I tell them that it is there 6% to lose and as the buyer I am in control of the transaction not the seller. At this point I get the elevator sales pitch as to why they are the best buyers agent in Baltimore City and will work hard for my interest. I just smile and take their card saying that when I see a 20% reduction I'll be back.

I have considered floating the idea in the past of having the realtor rebate me back 1% of the commish to pay the attorney, but till now we never had realtors hungry enough for me to be this bold. This is one of those "make it happen" leverage things that a realtor that wants to sell will figure out a way.

Note: My reasons for not using a buyers agent at this time and my insistence on using a real estate attorney are due to some past dealings I had with a transaction several years ago. I will not go into details out of respect for the settlement, but it took a year to resolve, cost me money, and resulted in both agents in the transaction having to go to hearing and be disciplined by MAR. I will never purchase property on the sole advice of a realtor.(especially 1 that jumped in during the boom.) You would be surprised what the presence of an attorney in the process and at the settlement table does for you stops a lot of the BS that happens the day of closing.


Lesson: A qualified prime buyer with 20% to put down are golden right now. If that is you, expect to be aggressively pursued. I imagine my email and cell phone are going to be ringing all next week.

3. Everyone had a guest book and wanted me to sign. I balked, but was willing to pass a card. I do not know if you are aware but those of you who are going to open houses, if you do not say your are represented by an agent on the guest book, it can be used against you. This becomes a legal doc that can get you in bad situation if you want to buy the house as some selling agents will push the issue that they should get the whole 6% since they made the initial connection.

Lesson: This is a small thing but don't sign anything till you are at the offer table. NOTHING. Common sense but then again people thought that NINJA loans (NO INCOME, ASSETS, or JOB loans) were great products too. Again without speculators the demand is gone and only true buyers will shine through.

4. All rehabs look the same and are over upgraded.
The exposed brick/stainless/granite/ hardwood/exotic fixtures fad has resulted in sameness with all places. There is very little difference outside of square footage and location on a street. These are now the reasons it will sell, not the 25k in building materials that got your neighbor got a 100k return on in 2 years. This stuff is interior decorating. Appraisers will tell you all they care about is if there is a stove, not if it is a Viking range. They care if there is a sink, not if it cost $999 at Restoration Hardware. The premium for maple cabinets and granite counter tops is next to nothing in coming up with an appraisal. These guys plug data into a computer program that does most of the work. With banks now pressuring them to appraise down, I think a lot of sellers are going to be in for a big surprise when getting financing to allow someone to take your home is hard because your "investment" went south. It's capitalism, get over it. The invisible hand is now going to push it down more over time.


Lesson: Do not overpay for upgrades! You are going to get ripped off as the comps will kill you over time. Many baby boomers are going to be selling in the next 5 years in houses that are modestly or never upgraded. When they cut the price 30-40% below what you paid to get it sold so they can move south or west. If that's all the sells over a 2 year period the appraisers have no choice but use them as comps.

5. Pricing of new listings are either chasing the bottom or wishing prices.
The great unwind has begun if you look at the graph below of listing(wishing) prices vs. what actually settles, you see the price difference is 30-40%. This should be a wake up call but sellers think there place is special.



Hat tip above to Realty times.



Lesson: This shows what's the max price point for a typical single professional buying in the city. The numbers do not lie. The pipeline at the bottom for the first time buyer has to come back before the high end can be bought by those moving up. The stuff in the 450-600k range? These folks may take more than a decade to come back to peak.


6. Foreclosure dumping is coming. Sell now below the comps or you are screwed.
I asked a couple agents what happens when the foreclosures start to dump onto the market. Most of them say that it depends street to street in baltimore city. They said that the banks are not dumping houses just adding inventory. They are hiring agents and in many cases come on the market higher than other sellers. One agent explained to me that foreclosures are hard and she steers her buyers away as most have issues and are frustrating as dealing with the banks becomes a long and drawn out process and are totally "as is". She explained the last one she walked into had been vacant for 6 months and had rat feces everywhere.

One agent explained to me that foreclosures right now are mostly people who got over their head on a rehab. He thinks the next wave will be the newbie realtors and mortgage brokers who came in and speculated themselves. Some paraphrased statements below:

"A lot my colleagues jumped in this field after a couple CCBC classes and took the RE tests. Before they were realtors they were bartenders or waiting tables or laid off from a dot com company, it is the same with the financing guys" He said he expects some of these newer brokerages fall apart as many of them do not know what they are doing taking on inexperienced realtors. "I welcome the realization that you are your own small business and only those that can sell and can manage cash flow will survive. The less work I have to do for these newbies in a transaction to get the deal done, the better."

He explained he has been selling in Canton and Federal Hill for 12 years and owns his place in Federal Hill free and clear. He does not drive a luxury car but a modest SUV as he said that it's throwing away money in the city because of the parking scratch and dent issues and insurance. (I agree with that statement and think he only said it because I said I have no debt and a paid for car and saw me pull up in my 4 year old vehicle.)

He added that prices are not going to come down as much as I think. His feelings are that these neighborhoods hit a critical mass and are permanently changed. Rehab tax credits worked and the city is in better shape because of it. When I brought up the schools he said that there is going to be a % that will do the private school route. The rest will move like the pattern for the past 20 years, just without have a expectations of the big payoff.

"Expectations will change over time and we will return to the normal market of the late 90's once the banks start lending money again."

Always the cheerleaders.

Lesson: Peak foreclosure is not here yet.

According to realty track the 21224 (Canton) zip code has 176 active foreclosures.
21230 (Fed Hill and Locust Pt) has 107 active foreclosures.

That's a lot of inventory for the banks to sell. Think I'll wait unless I get a hell of deal.