Real Estate News & Commentary by Chris McLaughlin, March 27, 2009
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Taxman cometh
Tax reform is next up on Obama’s massive do-to list. He’s planning to set up a task force to reduce the estimated $300 billion-a-year tax gap — the difference between what individual and corporate taxpayers owe and what they actually pay. “Managing to make headway to reduce that gap often means difficult reforms,” said James Poterba, president of the National Bureau of Economic Research. While compliance is high for small businesses reporting wages paid to workers, compliance is much lower in cases when there’s no third-party reporting, like small business owners who do mostly cash transactions. The cash economy may account for over $100 billion of the annual tax gap, according to testimony from Nina Olson, the National Taxpayer Advocate. The members of the task force will come from the Presidential Economic Recovery Board, headed by former Federal Reserve Chairman Paul Volcker. We’ll get to hear its proposals on Dec. 4. I can’t wait.
Good news…no, wait…less bad news
At least one home builder is less unhappy with the market. KB Home, of California, slashed its quarterly loss by 78 percent, more than expected, reporting a 26 percent increase in new home orders as cost-conscious buyers flocked to the builder’s smaller, more affordable models. For the quarter ended Feb. 28, KB Home reported a net loss of $58.1 million, or 75 cents a share, compared with a net loss of $268.2 million, or $3.47 a share, in the same period the year before. The company has stepped up its rollout of smaller, more affordable homes called The Open Series aimed at competing with foreclosures and other previously occupied homes. New home orders totaled 1,827, and the cancellation rate dropped from 53 percent to 28 percent in the year-ago quarter. You’ll notice these are still losses we’re talking about here…just less of them.
US heads for inflation
While Japan tips into deflation and Europe coasts at near zero inflation, U.S. prices edged up in February. Excluding food and energy, the index rose 1.8 percent after gaining 1.7 percent in January. “The core price index was on the high end of expectations. This will fan inflation fears. The Fed is sowing the seeds of future inflation,” said Scott Brown, chief economist at Raymond James & Associates in St Petersburg, Florida, speaking of the massive money printing exercise taking place in the US. Obama is set to quiz leaders of the biggest U.S. financial institutions on Friday about the economy and their businesses as his administration seeks broader power to regulate the financial system. It’s a good thing China is still willing to grudgingly buy the US dollar…or is it?
Spending up, income down, saving up
The Commerce Department reported Friday that consumer spending edged up 0.2 percent in February following a 1 percent jump in January. But the report says incomes fell by 0.2 percent in February, the fourth drop in the past five months — declines that reflected the sizable number of job layoffs because of the recession. After-tax incomes also fell in February, edging down by 0.1 percent. We’re doing a bit better at saving though…the personal savings rate dipped slightly to 4.2 percent in February, compared to 4.4 percent in January, but it’s the first time the savings rate has been above 4 percent in more than a decade. Isn’t it ironic that overdrawn credit caused the problem, but saving will make it worse?
Now on to our real estate investing education section…
Make or Break Short Sale Deals with BPO’s
BPO’s or brokers price opinions are just one of the tools every short sale investor and real estate pro should become intimately familiar with; they can literally make or break a borderline deal. In a nutshell, as a short sale buyer you are searching for a low BPO – in fact, the lower the better in most cases. This provides the justification necessary to submit a low…or ultra-low…offer on a home; after all, lenders are not likely to just take your word for it that the property is worth only x amount. They want a reliable estimate on the current market value of the property including reasons why it is less than previously sold or assessed for in the past.
On the other hand, the BPO is typically representing the interest of the bank or lender – since the bank isn’t likely to send employees all over the nation to ascertain the current value of each and every property facing foreclosure or reduce resale value they contract with local brokers to do it for them. The BPO must maintain a feasible rationale for the lower value or risk hurting their own hard earned reputation.
So, how can a buyer work with the broker to obtain the lowest possible BPO? Start with these simple steps:
Open communication. Let the broker know the purpose of the evaluation. Remember, a BPO is a brokers price opinion – although they have expertise in the area, opinions are highly subjective. The very fact that the property is likely to go into foreclosure or other adverse status can actually influence the price by thousands of dollars – especially if there are other pending foreclosures in the area.
Don’t make improvements yet. While you want the property to appraise for a higher value after making repairs and renovations resist the urge to improve or even clean it before the sale. Cosmetic blemishes are easy to fix but may dramatically alter the price point of a home.
Walk & Talk. Take time to introduce yourself and show up when the property is being evaluated. Be sure to point out easy to miss items and share any negatives they might have missed. This is where it can really pay to do your homework in advance; even bus schedules or annoying neighbors might further detract from the value of a home.
Make it Easy. As you might imagine, BPO’s are in hot demand right now so make their job a little easier by pulling up comp’s on your own. Especially if you are new to short sales this is a great way to further familiarize yourself with the area and learn even more about the property – plus, it helps strengthen your position and makes the brokers work easier.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid flipping of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner and Supervising Broker of one of Florida’s
largest Real Estate firms, running 4 different
offices, supporting nearly 450 agents, uniquely
positioning him to help thousands of investors
make money in the biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* On twitter: http://twitter.com/mclaughlinchris
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