Here Comes The Other Shoe.......

It's been several years since the Indiana State Supreme Court ruled on behalf of a small number of Lake County Indiana tax payers that the previous system of assessed valuation was unfair. As thousands of Hoosiers pay their tax bills over the coming weeks, we will all be asking how the system can STILL be this off base.

First, virtually none of the hundreds of homes that have sold in the last year that I have reviewed are being taxed at their recent sale value under the new bills (which is the actual point of having the state assess by MARKET VALUE). While not all counties have a defined example, it appears the new distribution of tax burden is going to become a major pressure on those who pay property taxes in Indiana. We have heard examples through our partners in the lending and title business that a number of real estate transactions have fallen apart at the closing table as the new tax burdens became clear to prospective buyers. Many municipalities in Hendricks County have had 50% increases in taxes from the last tax year. For many home owners, that is a painful increase. For some, it is a catastrophic one.

Here are a couple of examples from Hamilton County that have come to light. A $325,000 home previously taxed at $2410 for the entire year will be paying just over $3000 per year due on July 1 of 2007. Remember the headlines about a 'rebate check' we were supposed to receive to blunt the extreme shift in residential taxes? From the tax bills we have seen there is no mention of a rebate, only that the credit passed by the legislature has been assigned half to the Spring and half to the Fall of each tax bill. Think there may be some confusion on this issue?

The result of all of this could be a new round of foreclosures in the state of Indiana. People who were close to the edge before are going to get unceremoniously shoved over the cliff if their taxes increase 40-50%. The last thing Indiana's economy needs right now is a hammer to the value of it's home owners. This scenario, if it plays out as it seems, will be a nightmare for Indiana tax payers and real estate owners. It will blunt the first time home buyer market with higher payments, it will suppress most potential equity growth and essentially send the overall real estate market into dormancy. It would ensure that the current slow market we are in would last well beyond 2008.

I hope we're all wrong about these bills....that there's something more to them that will change their net affect both this year in years ahead. The message to our legislators should be loud and clear: Fix this mess NOW! If not that boot may be coming down hard on all of us who have believed in the American dream in the Hoosier State.

Funeral For A Friend.....

I'm digressing today. The football coach at my alma mater passed away of brain cancer at 59. He was one of the most inspirational people you'd ever meet. The world will miss him. Coach Hoeppner was a big fan of this poem that he recited along his journey:

Don't Quit

When things go wrong as they sometimes will.
When the road you’re trudging seems all up hill.
When funds are low and the debts are high.
And you want to smile, but you have to sigh.
When care is pressing you down a bit.
Rest, if you must, but don’t you quit.
Life is queer with its twists and turns.
As everyone of us sometimes learns.
And many a failure turns about.
When he might have won had he stuck it out:
Don’t give up though the pace seems slow –
You may succeed with another blow.
Success is failure turned inside out –
The silver tint of the clouds of doubt
And you never can tell how close you are.
It may be near when it seems so far:
So stick to the fight when you’re hardest hit –
It’s when things seem worst that you must not quit.


You can hear more in this brief talk: (cut and paste)

http://www.theindychannel.com/video/13527631/index.html

Denny Crane says
'Who wants to be a Travel Agent?'

Welcome to my metaphor. Inspired by nearly a week of reading my new favorite blogger, Rich From Copywrite, Inc. (linked on the left side of the page), this piece is motivated by change. For my purposes, I'm speaking to the change in doing business or owning real estate. The manner of conducting a real estate sale is about to be swept away into an entirely new paradigm like a number of businesses have been in the recent past.


On ABC's Boston Legal, William Shatner, aka Denny Crane, constantly pops into scenes tossing out the painfully embarrassing, yet somewhat obvious line. In the real estate business, Denny would again be loudly asking the obvious of those of us helping to orchestrate real estate transactions and those who own real estate as an investment.

"C'mon.....who wants to be a travel agent?"

Why? Because those who conduct the business of Real Estate and those who own real estate are in the midst of a titanic shift in the process, much like the travel industry saw several years ago. For my skewed context here, there is no irony lost on the character of Crane, played by Shatner in his commercial endorsement role to PRICELINE.com . 10 years ago, the travel industry was respected, successful and storming ahead with it's service to people in every form of travel based need. America was increasingly affluent, mobile and loved to be on the move. That year, 1997, Priceline.com introduced itself to the traveling public in the form of William Shatner through a stream of wacky commercials that pushed us to point and click to find the cheapest air fares (and later in classic brand extension hotel rooms and rental cars). A decade later the travel industry has laid off thousands of workers. Essentially it's become a shadow of it's former self. Many other service industries are experiencing that as well along with the products they represent, like real estate.

Old school agencies who broker travel have basically been redefined to an Internet based business that fills a niche of customer service. The difference is there is no need to have legions of people seated at a desk to actually place the orders. There are some direct service agencies, but they are a small minority serving certain business and other pigeonhole clientele. To be fair, the change wasn't necessarily any fault of the travel industry and the huge numbers of it's successful representatives other than they never saw it coming. Who did? Can any of say we knew how the Internet was going to absolutely flatten so many businesses by the immediate accessibility it provides?

Well it's coming again to the business of real estate...this time precipitated by the current down turn in the Real Estate market. Anthony Robbins, motivational speaker and infomercial guru has written that 'things don't change when conditions are comfortable....change occurs when pain is present.' If that's the case, change is a full blown tidal wave heading directly for us. Dropping values due to foreclosures, excessive new homes supply, a sub prime mortgage fallout and other secondary factors are the norm today and it will affect most all of us. Falling equity in homes has driven the discount service brokerage movement in the past year and they will continue to gain strength (much to the chagrin of many of my colleagues). They will not, however, replace the affect of the most successful brokers but rather will feed upon those individuals who continue to try and charge a premium fee for less than top shelf service. It's the classic Wal Mart - Nordstrom example. The middle is disappearing to be replaced by the most cost effective (discount) and the very high end.

Real Estate brokers and their companies must learn to do things differently. The effect of the current market downturn will demand that. Watch the numbers in the winter of '07-'08. The quantity of Realtors in this country is going to take a major nose dive (not all would think that's bad, I know). Likewise, the manner in which we all make investment decisions about real estate is also going to change. Dwindling demand for 'vinyl village' types of homes and increasing demands for prime locations will be highlighted. In our area, lots and neighborhoods with character (water front, heavily wooded, golf course) will be the most coveted for more than aesthetic reasons. At this moment they are the only locations selling at a premium and as the public becomes more and more aware of this as a business issue, their demand will rise even faster. The days of buying something slick, shiny and new just for those reasons will soon be a secondary decision. Consumers will be forced to look at the investment first which is not how many decisions have been made in the past. Consumers who blindly buy property for any reasons other than investment first will quickly become the 'travel agents' of the real estate marketplace. I can almost hear Denny Crane's thoughts on that......as painful as they may be.......

Waiting to exhale....have we seen the last breath of the down market?

Both the local and national media have spent the last seven or eight months beating up on the real estate market (with some correctness) and now seem to be debating where it's all headed. The Indianapolis Star on Friday May 11 boldly predicted from two different sources that April Real Estate sales numbers rose and that we were literally coming out of the cold. It's always interesting to me when multiple sources draw from the same data and get different numbers to support a theory, which happened in this case. Company A said sales rose 7 percent from the 11 county metro and Company B said 9 percent. What it really tells you is that data can be viewed many ways by different sources especially if it's in their self interest to do so. I've always believed we just tell people the truth, no matter if it's good news or bad and let the market work itself out. In our experience in having over 75 properties listed, there was a brief pulse of sales in April but it has retreated and now is grinding along at a Jan/Feb/Mar pace. Are we going down again? Hard to tell but at the very least we do seem to be bumping along the bottom of the market trough without any clear direction.

Surprisingly, May is typically a slow month in the Indianapolis area with more of a focus on the 500, graduations and such and less concern about home buying. We have companies that don't want to fight trying to find hotel rooms for their potential incoming employees on a weekend in May and choose to just wait until June to bring them in for a visit. This has actually been a trend we've seen for years. The question is this year will things perk up in June or will we continue to trudge forward at a 'snail like' pace.

Several things are more certain in this economic climate that all of us can relate to. Gas prices have shot up and consumer spending has sagged with Wal Mart posting it's biggest drop in sales in the history of the company. Real estate inventories are still very high with a minimum absorbtion rate taking place on those homes for sale. For home sellers, it's a time to be realistic and not greedy. I'm amazed when I go out on market studies, present the data and watch homeowners still virtually ignore the raw numbers to pick a valuation of their home out of thin air. I was on such an appointment several weeks ago where a home had a number of similar comps that had sold in the low $300,000's along with having over 80 homes for sale in it's close geography/price. Two were selling per week from that price range and location. 8 sales per month with 80 for sale....a 10 month inventory assuming NO other homes coming on the market, all of which is a big hurdle to overcome. I explained it thoroughly, talked about the importance of marketing quality to maximize their home's value and they promptly listed it at $337,000 (at no surprise with another agent). Their agent has since posted poorly chosen pictures with no descriptions that make their home look half the size it really is. The agent either doesn't understand what good presentation is or simply chose to implement the marketing on the cheap. Either way, the price and presentation are going to cost the sellers big money before it's over.

What many sellers don't realize is that the responsibility of the Realtor has changed. Being a Realtor is no long just about supplying information than it is the actual use of that information to strategically position a home to sell. It's also about psychological presentation. Now more than ever how you present your home on the Internet will absolutely affect value. If your pictures are shot without a wide angle and chosen improperly you will make your home look small and you will lose potential buyers. If you lack the proper descriptions of the available spaces in your home you will lose potential buyers who may have a need for what your home offers but not the vision to recognize the potential your home has from a poor photo.

Timing is also a major part of the equation. It is such a strong buyer's market that pricing relating to time for sale will affect a seller's bottom line. A seller will never have more leverage than they do at the start of the marketing process. They will never have the leverage to negotiate price, inspection items, closing dates, timing, or ANY of the essential terms if they incorrectly price their homes. Incorrect pricing means longer time to procure a buyer, the more cynical the buyers will be about their absolute value and the less balance there will be for sellers to have their fair say in getting the transaction to closing. Longer time on the market from incorrect pricing usually means a price reduction which leads to even more indecision in the minds of the buying public. Sometimes quality homes who over price at the outset get into a pricing 'free fall' where interested parties become so cynical they simply choose to watch the price go down rather than jump in for fear of overpaying for a property.

In short it's not a time for the faint of heart. Savy buyers have learned their money is worth more than ever with the supply outpacing demand. Does it mean that every closed sale is a steal for the buyer? No....but it does mean that purchases made now based on good information and guidance will bear strong investment returns over the long haul. We've all heard the phrase, 'it's good to be king.' Buyers are the kings of the market right now so breath deep and plan accordingly if you're active in the real estate market. If you're selling don't get greedy. If you're buying recognize that values have been deflated and you're likely making a profitable investment. Either way, only time will tell if the down market has exhaled it's last breath.....




If you dislike change, you're going to like irrelevance even less. - Anonymous