For decades real estate agents represented the seller either as the listing agent or as a sub-agent of the listing agent.  That meant that if you hired a Realtor to help you find a home and draft an offer and negotiate, that agent whom you thought was working for you was actually a sub-agent of the listing agent, and that was the law around the country.  In other words, “your agent” was really working for the seller.

But consumers woke up one day as if out of a long dark sleep, and demanded that the misrepresentation stop.  Consumers wanted their own agents who represented their interests and not the sellers’ interests, directly or indirectly.

In 1983 the Federal Trade Commission concluded that 72 percent of all buyers believed the agent they worked with was representing their interests. The report was the catalyst for a nationwide legislative movement that forced the real estate industry to disclose who their Realtor represents. By 1988, most states had disclosure laws.  This also woke consumers up to the need to be sure they addressed this issue when hiring an agent.  Agents began to respond to the need as buyer’s agents.

Janet Branton, executive director of the 44,000-member REBAC (Real Estate Buyer Agent Council) said, “A survey conducted in 2001 found 46 percent of home buyers used buyer representation. Buyer representation is not the exception anymore, it’s the norm. Consumers now know they have the right to be represented.”

Here’s something I find interesting.  Many buyers from outside the Sequim or Port Angeles area will see a sign and simply call the agent off the sign.  That’s fine, but here’s where it gets interesting.  The majority of these callers assume that the listing agent they call can represent them as their agent, too.   Many hire that agent to write an offer on that agent’s listing without any thought to the inherent conflict of interest.  I’ve interviewed many buyers and other agents, and there is almost never any attempt by buyers to interview their agent, to do their due diligence on experience and knowledge, or to discuss dual agency.

Dual agency is legal in Washington, and it is codified as legal in RCW 18.86.  That certainly doesn’t prove it’s in your best interests.

As much publicity as dual agency has gotten (and all the lawsuits over it), and as much as “buyer’s agency” has been discussed and written about, many buyers are still unaware of the need to hire their own buyer’s agent.

I strongly recommend that you hire your own buyer’s agent in Sequim or Port Angeles.

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They preached long term investing in the stock market,
the gurus, the brokers, those Wall Street tokers.
I invested my hard earned money
so I could grow old and take care of my honey.

What I didn’t know is they were greedy,
the gurus, the brokers, those Wall Street tokers.
While I chose conservative funding,
they sold derivatives with their cunning.

They lost my savings and my future,
the gurus, the brokers, those Wall Street tokers.
But they went home with billions,
While my government spends trillions.

While I worked 40 years, they partied on their yachts,
the gurus, the brokers, those Wall Street tokers.
I carefully invested in WaMu, GM, and Microsoft,
But then I didn’t count on greed and fraud and Madoff.

So I’ll sing a song, a favorite of my youth to
the gurus, the brokers, those Wall Street tokers.
Hi ho, hi ho, off to work I go, I’m screwed,
I’m screwed, I’m screwed, I’m screwed, I’m screwed,
I’m screwed, I’m screwed, I’m screwed.

Oh, wait, I don’t have a job anymore.

[By Chuck Marunde, J.D.]

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If you had a million dollars to invest, where would you put it right now (under your mattress is not an acceptable answer)?  Well, you definitely would not want to put it in the stock market.  You know I’m going to say that real estate is safer and more secure in the long run, but do you know why?  I’ll give you two reasons, both of which are rock solid.

Reason No. 1.  Real estate goes up and down, but nothing like the volatility of the stock market, and your 401(k).  This past 12 months alone, individual investors like you have lost trillions of dollars in value in the stock market because of economic conditions.  I hear retired people saying things like, “My mutual fund is down 30%,” or “We are really worried that we’re going to have to go back to work again.”  On the other hand, a home that has lost 30% in value this year (down to $420,000 from $600,000) may have been purchased 15 years ago for $175,000 (as is the case with many people).  But that real estate is solid, and still an excellent long term investment.  As a matter of fact, in my area homes are only down 5% to 15%, depending on the precise location and features.  (more…)

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In every crisis there is opportunity, and for those hurting, maybe now is the time to consider that opportunity may help offset losses.  Cash is king in a crisis.  It always is.  There are tremendous opportunities in the stock market, but of course, none of us can be sure which stock that would be.  The risk is extraordinarily high.  But real estate is a buy, and the risk is a fraction of the risk in stocks.

By the way, there are two major industries that are going to take hits in this market:  1.) financial advisors and money managers, and 2.) real estate brokers and agents.  This is a no brainer, but watch for many offices in these two industries to close in the next six months.

There will be opportunities to pick up businesses in trouble or the stock of companies that are grossly undervalued, and there will be many.  One author, Jim Dines, said it well.

1. From Jim Dines of the Dines Letter [↩]

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You can buy real estate for your IRA instead of stock.  That sounds pretty attractive right now, and a lot of people are taking advantage of this option.   What’s the advantage?  Many folks are talking about how their retirement funds in the stock market are down 30% to 40% right now.  While real estate dropped in most areas of the country, too, the drop is very small.  For example, in King County, Washington, houses are down 4% from last year.  That’s pretty stable, if you consider that a house bought in King County in 2000 for $241,000 has a FMV today of $430,000.  That $430,000 is only down $19,670 (4%) from last year.  That beats an IRA in the stock market hands down.  Real Estate is more stable.  Always has been.

An IRA custodian may allow you to purchase raw or vacant land, residential properties, or commercial buildings for your portfolio.  Some custodians will permit foreign property or leveraged property.

Since buying a property may require more funds than you currently have available in your IRA, you also can have your IRA purchase an interest in the property in conjunction with other individuals, such as a spouse, business associate, or friend.  If the property is leveraged, the debt must be a non-recourse promissory note.

The Internal Revenue Service will not let you use the real estate owned by your IRA as your residence or vacation home, nor can your business lease space in your IRA-held property. The underlying premise for any real estate investment purchased with IRA funds is that you can’t have any personal use or benefit of the property.

There are a few other IRS limitations as well. You cannot place real estate you already own into your IRA. Your spouse, your parents, or your children also could not have owned the property before it was purchased by your IRA. Property owned by siblings, however, may be allowed, since the Internal Revenue Code (section 4975) specifies that only “lineal descendents” be disqualified.

This is an excellent option for those who are seeking a more stable long term retirement fund and who have confidence in real estate.  As I look back on real estate over the past 30 years, it has been consistently appreciating and even in economic downturns, it still holds its value much better than stocks.

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None of us bought tickets for the roller coaster ride we are all riding.  We’ve been going up and down and wondering if we are at the bottom yet.  I have words of encouragement for you.

We are near the bottom, but not quite there yet.  Before it gets better, it must appear to get worse.  The worse will come in this fourth quarter and the first quarter of 2009 when many economic government reports (employment, consumer price index, industrial production, business inventories, housing sales, new construction, interest rates),  and thousands of corporations report their quarterly results, including earnings reports¹, losses, and layoffs.  Meanwhile, there will be more companies going into convervatorships or filing for bankruptcy protection.

Let’s admit the obvious right now.  All of that news will be ugly.  We know it will be.  How does the stock market and consumer sentiment react to ugly reports from the public and private sectors?  Like a child in Kindergarten, the stock market always tanks with bad news.  I can guarantee this is true.  It always is.

And then, it comes back.  While I am not big on governement intervention, we do have literally trillions of dollars that governments around the world have committed to shore up threatened markets.  Many industries and segments of our economy will struggle, and some companies will be gone when the roller coaster comes to a stop, but we will not only survive, we will eventually be thriving again.

Be of good cheer.  We will be okay.  For now, you and I need to take a deep breath and say, “This too shall pass.”

1. There will be thousands of disappointing earnings reports.  For example, here is a short list of just next week’s report to come:  On Monday, Halliburton will report before the market opens, and Dow member American Express, SanDisk and Texas Instruments will be out after the closing bell.  Several Dow components will be out with results on Tuesday, including 3M, Caterpillar, DuPont and Pfizer, all of which report before the start of trading.  Tuesday’s late results will be headlined by Yahoo!, with E*Trade, Boston Scientific and VMware earnings also on tap.  Wednesday will bring another busy earnings day, with Dow components AT&T, Boeing, McDonald’s and Merck all set to report in the morning.  Also due early Wednesday are quarterly results from ConocoPhillips, EMC, Freeport-McMoRan, Philip Morris and Wachovia.  After Wednesday’s close, tech giants Apple, Amazon.com and Baidu.com will report, in addition to Sallie Mae and Amgen.  Thursday will bring earnings releases from Dow component Altria, Bristol-Myers Squibb and UPS in the morning, among others. After the close, Microsoft will headline the late reports.  Friday’s release calendar is considerably lighter, with Ingersoll-Rand and Ericsson  headlining the earnings reports. [↩]

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Real estate prices in Sequim and Port Angeles and throughout the Seattle area are holding up well compared to other investments, particularly the stock market right now.  USA Today published an article on October 8, 2008 entitled, “$2 Trillion Wiped Out of Retirement Funds.”  While this represents a 20% decline in retirement funds in a matter of weeks, the Northwest Multiple Listing Service data shows the average price of a single family home is down only 7.8% this September compared to September of 2007.

This is good news for home owners and for investors who are not over leveraged.  Again, we see that real estate is a solid investment compared to other retirement options.

In Clallam County, the third quarter of this year (July - Sept 2008) the sales of single family homes were priced as follows:

Comparing these numbers to last year’s third quarter (July - Sept 2007):

The median price this year is only down $25,500 from last year.  That’s real money, but it’s not a fortune by any means.  Days on market (DOM) are up, but not substantially for these sold homes.  [To weight the data for more accurate results, I eliminated the homes sold above $700,000, which represents a small segment of our market but can skew the data and the results.]

This should be encouraging news for those in real estate.  We are in challenging times, but we will get past this disruptive election cycle and the economy will stabilize, and we will get back to normal.

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This year has been a tough year in real estate for sellers, but the problem goes far beyond the real estate industry.  Yesterday congress failed to pass a $700 billion dollar bail out package for financial institutions, and the Dow Jones Industrial Average lost 777 points, the largest single day crash in history.  The Wilshire 5000 recorded a paper loss of $1 trillion dollars yesterday.  The Feds recently took over Fannie Mae and Freddie Mac, holders of 70% of the mortgages in the U.S.  WaMu bank files bankruptcy, the largest bankruptcy filing in history.  [Note added Oct 9, 2008:  Since the start of the year, investors have removed more than $81 billion from stock mutual funds according to the New York Times.]  And there is much more to come.

What does all this mean?  (more…)

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The uncertainties in the real estate market are part of a much bigger picture of concern for most Americans.  This has to be one of the most interesting, uncertain, and scary economic times we have lived in for a couple of decades.  Millions of Americans are looking for answers to difficult questions, such as:

1.  Is my retirement fund safe in the stock market (mutual funds)?
2.  Are my other investments in cash accounts and investment accounts safe?
3.  Should I convert more of my long term investments to real estate?
4.  What’s going to happen to the mortgage market?
5.  What will the real estate market do in the next year?  Should I buy?  Should I sell now?

My opinion, for what it’s worth, is that real estate is 100 times safer than mutual funds or stocks managed by strangers on Wall Street and largely controlled by exogenous variables over which you have no control.  Despite the craziness in the mortgage market, the government takeover of Fannie Mae and Freddie Mac, and the record foreclosures across the country, individual real estate owned by you cannot disappear, nor is it subject to the number one threat to your financial security.  What is that threat?  (more…)

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Where should your money be parked in tough economic times?  Should you be in real estate or in the stock market?  In the news today Wachovia Corp. reported a record quarterly loss of $8.9 billion, slashed dividends and announced 6,350 job cuts. The stock fell 12 percent in early New York trading in a single day.

I was talking with a client yesterday who has watched his retirement account dwindle in his mutual fund accounts over these last few quarters.  Now if your financial adviser and money management firm are good, your losses are small, but the majority of securities and money managers, in my opinion and experience, are more salesmen than professional investment managers.

Diversification is a solid investment principal, but if one had to chose between real estate and the unstable stock market, my argument is that real estate is far more secure.  Real estate prices may go up and down, but over the long run real estate has been a reliable investment, and real estate doesn’t go “poof.”

True Stories.  “Under McFadden’s management, Bradley Simon’s retirement fund dwindled from $700,000 to $267,000.” “Ron and Pam Yandell of Mansfield, Texas, turned over their $1.4 million retirement fund to a stockbroker who invested in risky tech stocks without their approval. They lost $230,000 in the tech crash.”  Read the full stories at Real Estate Still a Good Investment.

If all we had to worry about were the economic variables driving the stock market roller coaster, perhaps it wouldn’t be so bad, but there is another more insidious variable over which none of us have control–fraud.

(more…)

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