Just Say No

Allen Perry
04/25/2011
Just Say No
In today’s market as a lender you may risk losing some of the value of your home as a result of default, but there can be something that can be even worse. A risk that a lender takes when making a loan is losing their asset because of drug activity on the property. If a property is found to have drug activity on the premises the government can legally take the property without any compensation going to the mortgagee or mortgagor. This may seem very harsh but Congress passed this law in order to respond to a growing drug problem in this country.
The United States Congress passed the Comprehensive Drug Abuse Prevention and Control Act in 1970. This act authorized the federal government to confiscate property used to manufacture transport, store, and dispense illicit drugs. Originally, the act was supposed to cover things like cars and boats bought with illegal drug money, but the act was later amended to include real estate in 1984. This amendment changed the riskiness for real estate properties used for drug activity because of how Congress created the punishments for being caught for drug activity. First, the seizure of the property is a civil proceeding and not a criminal one. This means that the government has the power to take one’s property even if the owner or lender of the property was not charged with a drug offense; the property is charged with the offense, not the person. Next, the government claims a right to the property as soon as the property is used for illegal drug transactions. For example, if a lender obtains a property through foreclosure that used to be a drug house they still risk losing the property if the government decides to confiscate it. Another point to the amendment is that one’s whole property is put at risk even though only a portion of the property is used for drug activity. Fourth, property of great value can be seized even if the illegal activity was minor. Fifth, the property may be seized even if the owner or mortgagee of a property is completely innocent. If you lease a property to someone and that person conducts illegal activity they expose the property to forfeiture. Lastly, the amendment states that the owner or mortgagee of a property does not have any rights to the income of the property once the property has been seized. These measures may seem harsh, but they were meant to deter individuals from making bad decisions and coming down hard on those who they catch. Now what are ways to alleviate yourself from becoming a potentially responsible party and losing your investment?
As a lender you may just decide that you will not lend to individuals trying to move into certain areas, but this may get you into further trouble. This practice goes against the Home Mortgage Disclosure Act (1975) and the Community Reinvestment Act (1978). This is considered discrimination and may add to your headaches if you pursue this tactic to prevent losing investments due to drug activity. So what will save you from losing your property in the event that drug activity is found on the premises? The way one may save their property from forfeiture is called a due diligence defense. To establish this defense the owner/lender must prove that all reasonable measures to investigate the use of the property were taken. This may be difficult to prove though especially for lenders who make loans in different geographic areas; simple ignorance to the illegal activity is not enough to prove your innocence.
As a lender for real estate losing your asset because of illegal drug activity is a risk that one has to make if they wish to participate in the real estate loan market. The United States has decided that it wants to make an example of those who have anything to do with illegal drug activity, it matters not if you knew or were ignorant to what was going on in the property. As a lender/owner of a property you must take due diligence in trying to monitor the activity on your property as well as making deals with individuals who you feel are of high moral character (this may be easier said than done). Every career has its risks and in the world of real estate this is a real issue that needs to be considered whenever you make a transaction.










Bibliography
Clauretie, Terrence; Real Estate Finance: Theory & Practice, Cengage Learning; 2010
; “Drugs & Real Estate Forfeiture”, www.realestateabc.com; 2010

Interview with Darryl Greene

Allen Perry
3/28/11

Interview with Loan Officer

I had the pleasure of interviewing Darryl Greene for this assignment. Mr. Greene is a loan officer at Chase Bank in the Berkeley, Ca. He has the duty of processing applications and giving a final approval or denial of commercial and residential loans. I got a chance to sit down with Darryl Greene to see what a loan officer’s job consists of and some of the things he enjoys and dislikes about his career.

Q: When did you become a loan officer?
A: I became a loan officer for Washington Mutual in 2002. I graduated from San Jose State University in 2002 with a degree in finance. I was already working for Washington Mutual as a bank teller in college and once I graduated I was promoted to a loan officer.

Q: What is the best part the job?
A: The best part of my job is seeing the elation on an investor or an individual’s face when the application process is over and the loan has finally got approved; this is when they know the money is coming. Money has a funny way of bringing a smile to a person’s face.

Q: What is the worst part of the job?
A: On the opposite end of the spectrum, it always saddens me when I have to be the bad guy. Denying loans is always a tough thing for me to do, but it comes with the territory of holding my position.

Q: Have you ever felt particularly bad about having to deny a loan?
A: I had to deny this one newly wed couple about two months ago. They seemed like a very nice couple but they did not quite have the necessary collateral for me to approve the loan and still keep my job. The couple had their heart set on a house in Berkeley that they wanted but they did not have good enough credit for me to approve the loan at an interest rate that they could afford. It was sad because the lady started to cry. Those types of loan transactions are always hard.

Q: How has the loan process changed since the housing crash of 2007?
A: Since the housing crash of 2007 banks have started to really get back to the basics of real estate lending. This means no more loans based on fraudulent information Banks require good credit, proof of steady employment, and at least a 20% down payment to receive a loan. We also verify to make sure the monthly mortgage payments do not take up too much of a company or individual’s monthly income.

Q: Do you usually deal with commercial loans or residential loans?
A: I mainly deal with home loans, but I do work with small businesses and corporations. I would say 80% for home loans and 20% for commercial and business loans.

Q: Do you have any tips for first time homebuyers?
A: For first time homebuyers it is good to do your homework and look around to get the best loan possible. You also need to have an idea of how much of a loan you can afford. Some people get prequalification and preapprovals before they actually go through with taking out a mortgage.

Q: How has the recession affected the company’s profitability?
A: As you know Washington Mutual Bank no longer exists anymore. Our company was hit hard by the financial recession and mortgage crisis in this country; so hard that we were taken over by JP Morgan Chase. We are doing better and better with each passing quarter.

Q: What is your outlook for the next few years for real estate loans?
A: I feel that we still have a few years before we are totally out of the dark. I am optimistic that things will get better because they are starting to turn around.

Interview with Darryl Greene

Allen Perry
3/28/11

Interview with Loan Officer

I had the pleasure of interviewing Darryl Greene for this assignment. Mr. Greene is a loan officer at Chase Bank in the Berkeley, Ca. He has the duty of processing applications and giving a final approval or denial of commercial and residential loans. I got a chance to sit down with Darryl Greene to see what a loan officer’s job consists of and some of the things he enjoys and dislikes about his career.

Q: When did you become a loan officer?
A: I became a loan officer for Washington Mutual in 2002. I graduated from San Jose State University in 2002 with a degree in finance. I was already working for Washington Mutual as a bank teller in college and once I graduated I was promoted to a loan officer.

Q: What is the best part the job?
A: The best part of my job is seeing the elation on an investor or an individual’s face when the application process is over and the loan has finally got approved; this is when they know the money is coming. Money has a funny way of bringing a smile to a person’s face.

Q: What is the worst part of the job?
A: On the opposite end of the spectrum, it always saddens me when I have to be the bad guy. Denying loans is always a tough thing for me to do, but it comes with the territory of holding my position.

Q: Have you ever felt particularly bad about having to deny a loan?
A: I had to deny this one newly wed couple about two months ago. They seemed like a very nice couple but they did not quite have the necessary collateral for me to approve the loan and still keep my job. The couple had their heart set on a house in Berkeley that they wanted but they did not have good enough credit for me to approve the loan at an interest rate that they could afford. It was sad because the lady started to cry. Those types of loan transactions are always hard.

Q: How has the loan process changed since the housing crash of 2007?
A: Since the housing crash of 2007 banks have started to really get back to the basics of real estate lending. This means no more loans based on fraudulent information Banks require good credit, proof of steady employment, and at least a 20% down payment to receive a loan. We also verify to make sure the monthly mortgage payments do not take up too much of a company or individual’s monthly income.

Q: Do you usually deal with commercial loans or residential loans?
A: I mainly deal with home loans, but I do work with small businesses and corporations. I would say 80% for home loans and 20% for commercial and business loans.

Q: Do you have any tips for first time homebuyers?
A: For first time homebuyers it is good to do your homework and look around to get the best loan possible. You also need to have an idea of how much of a loan you can afford. Some people get prequalification and preapprovals before they actually go through with taking out a mortgage.

Q: How has the recession affected the company’s profitability?
A: As you know Washington Mutual Bank no longer exists anymore. Our company was hit hard by the financial recession and mortgage crisis in this country; so hard that we were taken over by JP Morgan Chase. We are doing better and better with each passing quarter.

Q: What is your outlook for the next few years for real estate loans?
A: I feel that we still have a few years before we are totally out of the dark. I am optimistic that things will get better because they are starting to turn around.

Thank you for your time sir.

Reconciliation

The process of reconciliation by definition is a final resolution. This process is the next to last component of the valuation process, bringing various techniques and values into a single opinion of value. Reconciliation can encompass an array of valuation processes and is used when there is no clear cut way to determine the exact method appropriate to estimate the value of a particular piece of property.
The sales comparison approach, the cost approach, and income capitalization approach are the most common combined approaching when doing a reconciliation. These three approaches will have different weighted values depending on the different variables associated with a piece of property. For example, the income capitalization approach is less significant in the valuation of one-unit homes, but will be weighted the most when you are valuating multi-tenant office buildings. The cost approach has little effect when appraising a 60 year old house, but will be weighted more when considering the value of opening up a new business as opposed to purchasing an existing site. Lastly, the sales comparison approach is the only exception because it is usually applicable in all markets, but might suffer a bit in markets where data is hard to find for comparisons.
The emphasize of any appraisal report should be tailored to the market characteristics. The emphasis of different approaches should mirror the behavior of the current market participants. If a market relies heavily on comparable listings as the determinable value, then naturally the comparable sales would become the most heavily weighted approach. If the market happens to rely on cash flows, then the income capitalization approach is best served. If the market place compares existing properties to the cost of new construction, then the cost approach is undoubtedly the most significantly weighted approach. The reconciliation approach is used when the three approaches are not completely accurate in their own entirety.
The reconciliation approach helps with accuracy when it would be difficult to value using only one of the three approaches. The final estimate is not required to have a single point estimate, but clients prefer to have an exact number. Reconciliation allows for a more precise estimate because of the additional information provided by using all three approaches. Reconciliation is a valuable tool in real estate appraisal and should be used when data is not definitive or abundant in any one individual valuation approach.

Interview with Josh Bruno Real Estate Appraiser MCD Direct

Recently I interviewed Josh Bruno, a real estate appraiser located locally in Fresno, California. Mr. Bruno is an experienced appraiser with over a decade of professional experience working for MCD Direct. He has worked in real estate markets throughout the state and has extensive knowledge in the field of residential appraisal. I have been interested in the field of appraisal as a possible career and this is an exceptional opportunity to speak with a real world expert.

Bottom-line what does it take to be a successful real estate appraiser?

To find success as an independent real estate appraiser requires building a reputation among clients. Business relationships can be fickle. One bad experience can cost you what would otherwise be a lifelong client. The importance of time management for a private, fee appraiser cannot be overstated. Some days will be busy, others will be slow. It can be difficult to manage the workload without good organization and time management skills. Clients need an appraiser who is reliable. Appraisers need to be detail-oriented, or risk missing information vital to the final value opinion. Ultimately, I believe to find real financial success as an appraiser, you must find a niche. Competition in residential appraisal keeps fees low, and pressure high. Make yourself a specialist in say dairy appraisal, restaurant appraisal, etc.

What are the necessary educational and licensing requirements need to become a licensed appraiser?

In California, the Office of Real Estate Appraisers (OREA) is the agency tasked with issuing and enforcing appraisal licenses. Appraiser license requirements fall into 2 categories: education and experience. There are four levels of licensure in California. A trainee license does not require any appraisal experience, but only permits the license holder to work under supervision of another licensed appraiser. A residential license is the first level of licensure that would permit the license holder to work independently. 150 hours of education (classroom/online) covering all topics specified by the OREA and 2,000 hours of appraisal experience are required to qualify to sit for the residential test. The 15 hour national USPAP (Uniform Standards of Professional Appraisal Practice) course is required as part of the education requirement. I currently hold the certified residential license which is one step above the residential license. It allows me to appraise and residential property regardless of value or complexity. The final level of licensure is certified general, which permits appraisal of all real estate including commercial, agricultural, etc.

How did you get started in the field of appraisal?

I became interested in the profession while enrolled in a real estate appraisal course at Cal Poly. After graduation, I took a job with the Fresno County Assessor's Office as a property tax appraiser. My coursework at Cal Poly covered the education requirement and my time at the assessor's office covered the experience requirement for the residential license. I applied for the license, sat for the examination, and started work as a private fee appraiser upon receipt of my license.

Are you a commercial or residential appraiser?

The certified residential license that I currently hold allows me to appraise commercial property with a transaction value not to exceed $250,000. As you might imagine, this rules out most commercial property. While I have completed a few non-residential assignments, my day to day work is comprised almost entirely of 1 to 4 unit residential assignments.

How exactly does your report play into the lending process?

My report is an independent valuation of the mortgage collateral and is a tool the underwriter uses to make the most informed decision possible on whether or not the loan makes sense for the bank to pursue. The value of the collateral is a piece of the risk puzzle, and the bank decides what return is required to justify the risk.

Who are the majority of your clients?

My clients are almost exclusively mortgage brokers. Although a homeowner could hire an appraiser to tell them what their home is worth, the opinion is rarely worth $300.

What is a typical fee you would charge for doing a residential appraisal?

$350 is a pretty standard residential appraisal fee. Increases in complexity of the assignment, travel expenses, etc. would be added to that base fee. Any additional forms a lender may require (operating income statement for income property, etc.) would also be an additional charge.

How has the current credit crisis affected your business?

Well it has defiantly slowed down. The banks have more control now and it is all about who you know. Fortunately I know quite a few people.

Where do you see yourself in twenty years? How do you see the industry evolving?

I see myself continuing to pound the pavement. In this industry you need to be constantly evolving to fit your working environment. The field of appraisal is becoming more rigged and I expect this trend to continue well into the future.


I would like to personally thank Mr. Bruno for his time and insight into the world of appraisal. The knowledge gained through this interview has helped me to better understand the life of a real estate appraiser and what to expect should I choose this profession. I have learn a great deal and again would like to thank Mr. Bruno for sharing his knowledge with me here today.

Interview with Rosemarie Barrera

Rosemarie Barrera
Realtor
Century 21 M&M and Associates

I had the pleasure of interviewing one of the most hardworking ladies in the real estate field, Rosemarie Barrera. Rosemarie is a Realtor with Century 21 M&M and Associates in Clovis, California. Mrs. Barrera specializes in residential real estate in Fresno and Madera County. She has been in the real estate business for 12 years and has won many awards for her hard work and determination. I was excited to interview a Realtor who works in the Central Valley to see what their perspective is for our residential real estate market’s valuation now and in the future, and Rosemarie was just the right Realtor to ask.

Q: Why did you get into the residential real estate business and how long have you been a Realtor?

A: “I was living in Orange County at the time and my brother’s girlfriend Rafeala suggested that I would do great in real estate. The rest is history. I was licensed in November 9th, 1999; I will be starting my 12th year in 2011.”

Q: What changes have you seen in the market since you started?

A: I have seen the market in the low times and in the high times, and now we are back in a low market.

Q: How has your marketing for obtaining listings and buyers changed over the past four years?

A: I have started to utilize Facebook, You Tube, and the general Internet more in order to obtain listings and market. It has become easier over the years to market listings since the Internet has opened up so many possibilities.

Q: Do you have different types of clients now as compared to a few years
ago?

A: No, not really. I mainly work off of referrals so others may have different clients than they are used to, but I stick with my referrals. I have been working with more banks, as foreclosures have been flooding the market.

Q: How would you describe the Central Valley residential real estate market?

A: It is great for first-time home buyers and investors. The only problem now is the lending. It is much harder to get a loan now and lenders are requiring much more documentation and inspections.

Q: How would you describe the value of residential properties now compared
to 4 years ago?

A: In 2006, Fresno and Madera counties properties were valued at the highest, and I was just waiting for the market to fall.

Q: What is the best technique for estimating property values and what method do you use most often?

A: I can’t really say what the best technique for estimating property values is for everyone, but for me I use the Comparative Market Analysis. It is a great technique when there many accurate and plentiful comparable properties to your subject property. I use the Comparative Market Analysis daily in estimating property values.

Q: What is your future prediction for the residential real estate market in the Central Valley?

A: Hopefully it will remain stable, but I believe that property values will continue to fall a little bit more, as the economy tries to recover.

Q: What qualities do you possess that make you a successful real estate
agent?

A: I am honest, reliable, know the market well, and I am a great problem-solver. If you are going to be a successful Realtor, it is imperative to be honest and know the market.

Q: Do you have any tips for a new real estate agent just entering the
market?
A: Number one is to be honest in all of your dealings. Also take as many classes as you can, learn how to value properties well and the prices of properties in the area you are working. Just learn the market and start running with a buyer or a seller.

Q: Do you have any suggestions for first-time home buyers?
Right now the prices of homes are low and so are the interest rates, so it is a perfect time to buy the perfect home!

Q: What would you suggest to homeowners who are looking to sell their homes in this down market?

A: If you must sell your home at this time, then the biggest tip I could give is to price accordingly. If you price your home to high it will just sit on the market, and will be a waste of your time. Make sure your home is appealing on the outside as it is on the inside, hire an aggressive Realtor that will market your home well, and clean the house well for showings.

Q: How are short sales and foreclosures affecting the Central Valley residential real estate market?

A: They are most of the market. This makes the prices of homes with regular sellers decrease drastically. If there is a house on a street with a regular sell listed for $150,000, a foreclosure will be listed the next day for $100,000 and will have multiple offers, while the regular sell will remain and eventually have to reduce their price to sell. We have seen this over and over again in the Central Valley, which explains the drastic reduction in prices since 2007.

I would like to thank Rosemarie Barrera for taking time out of her hectic schedule to answer my questions. We had our interview in her car on a way to a showing of one of her many listings in Fresno, which shows just how busy she really is. After interviewing Rosemarie, I now have a better understanding of the condition of the market in the Central Valley, and picked up some good tips for getting into the real estate field.

Interview with Real Estate Appraiser John Kendall

John Kendall is a Certified Residential appraiser serving the Fresno and surrounding areas. Mr. Kendall is self employed and has been successfully working in the appraisal industry for over 20 years. Mr. Kendall has also offered to share some of his industry knowledge and insight with me, for which I am truly grateful.

Q: How did you get started in the appraisal business?

A: “Well, I was working a corporate job doing appraisals and around 1992 I decided to go back to school and get licensed. After completing school I opened my own appraisal business in 1993 and have been doing it ever since, so I have around 20 years of experience”.

Q: What are you licensed to appraise? Commercial/Residential/Both?

A: I am a certified residential appraiser, so I strictly do residential properties.

Q: Could you describe the methods you use to do an appraisal?

A: I usually start off by going out to inspect the subject property, and then I will do research on the subject, find several comparables, take pictures of the subject, and do more research.

Q: How many appraisals can you do in a typical day?

A: Due to all the new requirements I can only do about one or one and a half appraisals per day. Before the crash I was able to do about 2 sometimes three appraisals consistently.

Q: Who are your biggest customers/clients? Homeowner? Bank? Etc…

A: Right now a majority of my work is for Fannie Mae due to all the foreclosures and occasionally I will do appraisals for lenders who are going to be making loans.

Q: What are some of the sources you use to obtain market data to make valuations?

A: I use a lot of public records to confirm data that I obtain and also the MLS. I did use a program called Metro Service, which the name has since changed because it was purchased by CoreLogic.

Q: How did the Housing Market Crash affect your business?

A: Since the crash lenders have required that more information is needed to do an appraisal, so now it takes me about 50% longer to do a typical appraisal. Now I am getting less work done which means less money that I can charge. As far as volume of appraisals I still get a lot of work because I have been established for some time, but I have heard of many appraisers going under.

Q: what is your future outlook for the real estate market? And the Appraisal industry?

A:I believe that foreclosures will continue to dominate the market for another year or two before things start to go back to normal and we see some appreciation in the housing market. As for the appraisal industry, about 5 years ago I heard a statistic that there were about 25,000 licensed appraisers and today there are only around 14,000, so with that said I think appraisers will continue to fall as long as the market is weak.

Q: What advice could you offer someone getting into the appraisal industry?

A: I wouldn’t recommend anybody to get in the industry right now because of how tough it would be to get started in a weak market. The chances of success aren’t that great right now with everything that has happened with the real estate market.

I would like to thank Mr. Kendall for taking time out of his busy schedule to share his experience and knowledge with me on the appraisal industry. In the interview I learned a lot of useful information about the appraisal industry as well as the Fresno housing market. The advice that Mr. Kendall shared with me about getting into the real estate industry, aside from the above question, was very helpful and opened my eyes to other areas in the real estate industry. It was a pleasure to learn things from an industry professional, so again I would like to thank Mr. Kendall.

Interview: Alan Atchley

Alan Atchley has been working as a real estate agent for over 25 years. He’s currently the Broker of the 6710 N. West Avenue branch at Guarantee Real Estate. As a residential real estate broker, finding the proper value of a home is essential to maintain a high level of success. I was fortunate enough to interview Mr. Atchley about valuing homes in Fresno and his thoughts on the current decline of the real estate market.

Q. What made you decide to become a real estate broker?

A. Before getting my license, I was a Fresno police officer for nearly 15 years. I got injured on the job and was forced into early retirement. I was too young to just sit around and decided to pursue another career. I chose a career in real estate because I wanted to work in a service industry where I could deal with people. I also was intrigued by the idea that every day had a different outcome. Knowing that each day would be different reminded me of my previous career as a policeman.

Q. What are your day-to-day responsibilities?

A. As I mentioned before, each day brings new tasks and challenges, which is part of the reason why I enjoy it so much. With that said, I’m the head broker in charge of this office so I’m responsible for every other realtor working under me, which includes overseeing every legal document or form that comes through the office. Along with handling legal matters, I also deal with my own clients so I’m constantly looking for new listing that best fit my clients wants and needs and I’m working as hard as I can to stay on top of the latest market information.

Q. What do you use to determine the value of a home or property?

A. The market is the ultimate determinate of a homes value. As the market goes up, a homes value will go up with it and vise versa. The market alone, however, isn’t the only thing needed to determine the value of a specific home. Using a Competitive Market Analysis or CMA helps us compare a specific house to other similar houses in that area.

Q. Are there any appraisal skills that you find helpful when valuing a home?

A. The best way for us to find the value of a specific home is by comparing it to other similar properties. The same is done through the sales comparison approach. We might also use a replacement cost if no comparable homes are found in that area.

Q. Has the recent decline of the housing market made your job more challenging?

A.  It’s made it much harder. We still get a large number of people who would like to own a home. The problem, however, is finding lenders for them. Since the initial downfall of the market, lenders have dramatically tightened up, making it much harder for the average person to get a loan. It makes it very frustrating to all parties involved.

Q. Did you have to change anything (work habits/ techniques etc) since the recent decline in the housing market?

A. Because both the demand and supply of foreclosed homes have significantly increased, much more of my transactions center on that. Before the crash, we were selling many more homes and primarily dealing with a homeowner instead of a bank. It’s also much more important to stay on top of the market now. Before the decline, a monkey could sell a house. Recently, however, only the most knowledgeable have been able to maintain  a high level of success.

Q.  What are the primary reasons for the housing decline?

A. The decline in the housing market is due to horrible decisions made in recent years made by, both, banks who gave them out, and buyers who took these risky loans on. There were three loans, in particular, that were the main causes. These loans include: Sub-Prime, Alt-A, and Option Arm.

Q. How do u feel about the direction of home values in the near future?

A. Home values definitely aren’t going up in the next couple years. In fact, there’s a good chance of them decreasing further. The first big dip in the market was primarily from sub-prime loans. Alt-A and Option Arm loans have yet to see any dramatic foreclosure effects because banks are releasing foreclosed homes little at a time. The problem with the Alt-A and Option Arm loans is that both the mortgage and interest rates are adjustable and will soon be adjusting to higher levels that many of the buyers can’t afford.

Q. How long do you think it will take for the market to increase back to its previous level?

A. I don’t see an increase in the real estate market for a number of years. The next couple years are going to be critical times for the industry. If predictions are right and another wave of foreclosures hit in the future, it might take 8 to 10 years to fully recover.

Q. What are the main reasons that values differ in different areas throughout Fresno?

A. Values of homes differ throughout areas of Fresno because of simple economics. Homes that are in higher demand will obviously sell at a higher price. Schools play a huge roll in this. Homes in Clovis Unified School District, for example, can add $10-20,000 to a home alone. Another key factor is the homes surroundings. People want to be near basic amenities like grocery stores and shopping malls. They also want to make sure the neighborhoods around the home are safe. A common trend is for newer areas to typically be safer than older areas. With all this factored in, demand for homes typically are higher in the North Fresno/Clovis areas as opposed to the South West and East Fresno/Clovis areas. Because demand is higher, the cost to live in that area increases. This also explains the reason why homes in cities such as San Francisco and San Diego cost much more than the same home here in Fresno. 

An Interview with Brandon Nisbett, BMN Building, Inc.

BMN Building, Inc. has been in the Central Valley area for more than three decades, and the company's President, Brandon Nisbett has been in charge for eight years. BMN Building, Inc. has survived through many tough times in the real estate industry, including the current market downturn, and it looks promising that they will be in business for many years to come. The following is my question and answer session with Brandon about his business and his personal reflections about the market's direction.

Q – BMN has been around for quite some time, and you've been running it for eight years. How did you end up running the company?

A – “My dad and uncle started this business when they were my age. They started framing homes on the side for beer money [laughs], and trying to earn a living helping the local contractors who needed extra help. And, with the experience they both had, they eventually decided to start their own business....so they became contractors. They were building homes, and built the company into what it is today. It wasn't always called BMN Building...we used to call it Nisbett construction.”

Q – Are you a general contractor, or does your company specialize in a specific field of construction?

A – “Right now, we frame houses for Lennar Homes....you might know them by their brand of homes called Cambridge. Cambridge, as you probably know because you're a local, too, is a well-known name in the Fresno and Clovis area for new homes and tracts. We've contracted with them for about 15 years now, I believe.”

Q – Do you have a lot of employees working for you?

A – “Well, right now, we only have nine people working in the field, and three, including myself and my accountant, in the office. When the market was good, we easily had 35 people in the field.”

Q – How many homes do you build in a year?

A – “Well, again, the market has taken it's toll on us, and we're averaging a much lower build rate than five years ago. We're keeping our doors open, and we're counting every penny. But there is still potential in our business. Lennar has several tracts and they typically have two houses per tract under construction, give or take. It's steady, and pays the bills.”

Q – Do any of your positions require a license or degree?

A – “Well, I have a Masters degree in business form Fresno State, and my accountant is a CPA. But, those are the only two.”

Q – Are you optimistic about the future of BMN Building, considering what the business climate has been like?

A – “Of course...you have to be. This is my bread and butter, and I know this [market downturn] is only temporary.”

Q – Where did you start when you were first given the opportunity to work for BMN?

A – “At the bottom. I was cleaning up trash at the job site, and taking it to a dumpster. I moved up to framing later on, when I was old enough. It was a long journey, but I know every aspect of this job, and I can fill in if anyone needs me to. I've got the experience.”

Q – When the market gets better, and you begin hiring again, what will you be providing to employees, in order to stay competitive?

A – “All of our employees are paid a typical wage for the area, but we also provide health insurance and retirement, if they choose to participate.”

Q – Were there times when you thought about getting out of this business, or even selling the company?

A – “Yes, yes. It crosses my mind now and again, but this business has a lot of potential, and I'm going handle it through whatever is thrown at it.”

Brandon was pleased with how the interview went, and he's obviously excited to see what the future holds for he and his company. Having a building contract with a major nationwide homebuilder, such as Lennar, makes the future of his company bright. BMN Building is surviving in a market where others fold, and Brandon looks forward to passing on the family business to his children.

Interview with Kathy Nation, Century-21 Real Estate Agent

An Interview with a Century-21 Real Estate Agent

By: Kellie Nation

Kathy Nation is a true woman of success. She has been teaching special education in the Clovis Unified School District for 25 years now. About six years ago she obtained her license to list and sell real estate. Kathy’s diligent work ethic mixed with extreme organization and love for people has contributed greatly to her success, despite the poor market conditions. In this interview, we discuss her outlook on how real estate is valued, appraised, and priced. As well, she advises me on her experiences with these dealings and which methods she believes to be the most effective.

1. How long have you been in real estate?

Six years. I went to an informational meeting at Century 21 where they talked about what the industry of real estate was like. They were starting up classes to get the license, so I took 6, 3-hour long classes each to help me study for the exam and went over all of the different aspects that would be on the exam. Then when the classes were done I had about 6 weeks to study on my own for the test. I was given sample tests to take everyday at home during those 6 weeks. I took the exam in downtown Fresno and found out within 2 days that I’d passed. Once I passed the test, I interviewed with a person at C-21 and started on right away.

2. As a realtor, what are some key qualities or skills that you had or have learned that have helped you become successful?

People skills are number one- being able to communicate with others well and having a compassion for helping them. Also, my ability to be patient with others was something that helped me. Some skills that I’ve acquired through being a realtor are being able to fill out the paper work properly and effectively, networking between loan officers, the title company, inspectors, and support people I work with, and learning what they do. For example, with a home inspector, I’ve learned how to identify which homes need a lot of work, how to value homes, and current market trends.

3. What types of sells have you dealt with?

I’ve dealt with short-sales, regular traditional sales as both the listing agent and the selling agent (though I’ve never been a dual agent), residential, land, and commercial. I’ve also done bank-owned sales.

4. When did you notice a major turn in the market? What sort of impact did it have on your success?

I first felt the decline about 5 years ago, one year after I got into the market. It seemed like it happened so quickly. My most successful years have come after the turn of the market; it wasn’t the current conditions that dictated my success, it was the amount of work I put into being successful. My philosophy is that even though the market is bad, it doesn’t mean I have to have a bad year. Many agents have had their best years in this type of market because they find a way to embrace what’s happening and to work harder to find success.

5. Have the current market conditions affected the types of listings you’ve obtained?

Yes. Properties have been less in value and lower priced. Short-sales and bank-owned properties are extremely common these days and have made up a large portion of my business.

6. What steps do you take in determining the value of a piece of property?

Well, obtaining comparables is first and foremost. Comps are the biggest way to value property. Also, inventory- how many houses are available in the price-range is a factor. If there is a lot of inventory, prices will stay low. If there’s a shortage of inventory (or demand), then you can command higher prices. Appraisals are also critical, but if you know what the comps are, you can basically know what the proper value will be. Appraisers can be kind of inconsistent. We sometimes get appraisers from out of the area that don’t know the true market here in Fresno, and I feel that can be detrimental in obtaining a true value on a piece of property.

7. Which techniques or methods have you found to be the most useful or accurate in the valuation process?

Using comparables is definitely the most useful tool. Also, understanding amenities, such as swimming pools, and being able to identify an accurate value. For example, a house that I’m looking up may need a new roof, and I need to know what the value of that would be and how much value it would add. I feel comparables are the best way to accurately do this.

8. Have you noticed any improvement in the market since the economic plunge?

Prices seem to be stabilizing (which is huge), short-sales are becoming a little easier to process, and banks are willing to fund repairs on their listings. These are all signs of moving in the right direction. Also, interest rates being at an all-time low is beneficial; it’s definitely a buyer’s market. When we had the tax incentive, that brought about a lot of buyers and potential prospects, but we no longer have that. Low interest rates and low prices are helping, though I don’t see these interest rates lasting for much too longer.

9. When do you expect the market to even out again?

It really is difficult to gage. It’s not going to be any time soon. I believe it will, but it’ll be a very slow process. There are still many homes in foreclosure and there still a lot of short-sales which makes me believe that the market crunch isn’t going to end any time soon. It will continue to be a buyer’s market for quite some time. If I had to estimate, I would say we’re at least two years away from seeing any major recovery.

10. What do you think it will take to see a continuous and indefinite growth in the market?

The housing market will need to see more regular sales, get away from short-sales, clean out the foreclosure inventory, and gain more regular-sale inventory in order to make growth plausible. As for as the economy in general, the unemployment rate is going to have to decrease and more jobs will need to be created in order to get more people working. I feel this will help consumers gain back confidence in the economy, which will result in an improved housing market.

11. What would you say to a soon-to-be college graduate, such as myself, majoring in Real Estate and wanting to become an active professional in the housing market?

I’d say, learn everything you can about the trade. More importantly, find your niche. Whether you want to specialize in residential or commercial, if you want to specialize in short-sales or in a particular price-range, or even a certain cliental. If you want to specialize in a certain area, find your niche and learn everything about it. Learn how to market yourself and be knowledgeable about the market and all inventory. For instance, if I were doing an open house somewhere, even if it isn’t my listing, I would want to know what other homes are available in the immediate area and what the prices are. Doing your homework will give you the upmost edge. Learn aspects such as financing. Try to be as knowledgeable as you can for your client and you will be successful. It’s all about service. You’re competing with 3,000 agents in Fresno, so what are you going to down to stand out above them? It’s about being able to deliver the best service you can through being accessible, prompt, and available whenever they need you.

Interviewing Kathy Nation gave me great insight as to what a successful real estate agent in the Fresno area believes about current market conditions, as well as the methods that she uses to value property. I can conclude that using a functional CMA, along with being overall educated on the market, is the most efficient way to put a price tag on any piece of property. Kathy is a very respectable individual and agent, therefore, I take her thoughts and beliefs for everything they’re worth.

Final Exam Annoucement

I have to give a make-up exam on Wednesday 10 AM.  Since I have to give one, I thought that I might as well open it up to everyone.

If you would like to the the final exam on Wednesday (10 AM) please send me an email.

Blog 3

Interview with Angelo Alessandro, Real Estate Broker of Primus Properties
Interviewed by Kevin Howes
Understanding how to valuate residential property is a necessity that everyone should understand in the real estate industry. Angelo Alessandro is a real estate broker and owns his own firm called Primus Properties. He has been in real estate for over thirty years and he primarily does residential real estate. He carries a bachelor degree as well as one year of graduate school at California State University Fresno and also he went to law school for one year at the San Joaquin College of Law. Angelo has many listings on the MLS and is a valued real estate broker in the Central Valley. Angelo was happy to help me in my interview and was very enthusiastic to about the project.
Q: How did you get into the residential real estate field?
A: “A friend kept "hounding" me to get licensed; I had no particular interest in real estate in 1975.”
Q: What is your educational background?
A: “BA degree (CSUF), one year of graduate school at the School of Social Work (CSUF), one year of law school at the San Joaquin College of Law.”
Q: What is the most challenging and rewarding aspects of your job?
A: “The most challenging, for me, is being able to handle disappointment caused by a lack of "loyalty" on the part of some clients. One of my favorite training/teaching topics is "your friends and family are the ones that will hurt you the most". I have found this to be true--your friend or family member lists or buys through another Broker (as they certainly are entitled to do)--but it still hurts. Some agents will not take on a friend or family member--they prefer to refer them to another Realtor. You must keep in mind that this is a profession in which you may do everything right--and NOT get paid for your efforts. A doctor's patient may die, an attorney's client may lose their case--but, the doctor and attorney still get paid. There are many variables (many of which are completely out of our control) involved in a real estate transaction; a deal can fall apart even when you have done everything correctly. This is just a part of our profession; accept it and it won't be so frustrating.
On the rewarding side is the client that has been underserved by other agents and somehow comes to you for help. If you accept the case, give it all you have, and the outcome is successful, you will experience an euphoria because you have helped that client realize a dream they may have had for a long time.”
Q: What is a "typical" work day like for you?
A: “There are no "typical days" in the real estate business; that's one of the upsides to this professions. There are, of course, some routine things, for example, client contact (if they are calling you, your probably not doing your job), file review, solicitation of new business, coordination of escrows (if any), returning calls from other Realtors, reviewing MLS for new/changed listings, coming up with new ways to develop more listings/sales/loans, showing properties, putting out "fires", etc.”
Q: What are some key qualities that have helped you become successful?
A: “A key quality in the Real Estate (and any other) profession is: FOLLOW THROUGH. If you don't FOLLOW THROUGH, all of the knowledge, tools, skills, good looks, charm, won't be enough to allow you to become successful. The complaints I hear today from frustrated clients are no different than the ones that I heard in the 1970's: my agent doesn't return my calls, (s)he is never on time, I don't feel like I am important to him/her. This is why it is ALWAYS possible to be successful in this (or any other) field, IF you are willing to do what others do not do, especially FOLLOW UP. I developed a simple and effective training acronym while working with the U. S. Census Bureau: HICUP: Honesty, Integrity. Confidentiality, Urgency, and Productivity. If you follow these tenants, you will enjoy a successful career regardless of what the economy is like at any point in time.”
Q: What techniques or methods are used in valuation of residential real estate?
A: “As a Realtor, I rely on closed transactions for values (not listing prices). These data are available through the MLS and Title company data bases.”
Q: Which techniques have you found to be the most accurate in the valuation process?
A: "Closed transactions.”
Q: Are there any pros and cons when dealing with different methods for valuation of houses?
A: “If you rely on listing prices, you may under value your potential listing. An appraiser will note and take into account the reason (or reasons) why a sale was made at an "under market" price. In these cases, that sales price MAY not effect your listings price (value).”
Q: What factors are responsible for the decrease in home values in recent years?
A: “Too lax lending policies led to loan failures, thereby creating an over supply of homes on the market. Adjustable rate mortgages, which, when rates were raised, created a no win situation for the buyer and they ended up defaulting. Using home equity like a checking account which resulted in a decrease in home equity, which resulted in borrowers walking away from their loans because they could never catch up.”
Q: How has the current market conditions affected your business?
A: “My volume has decreased significantly. It is more difficult to get potential buyers approved for loans. Banks are very slow at answering offers, to the extent that some buyers just give up on the process.”
Q: When do you expect properties to regain their values or experience growth again?
A: “In my opinion, things could look better by the end of 2011. I don't think we will get back to the pre decline values because they were artificially created like stated before.”
In conclusion, valuating residential property is critical in having success in the real estate business. There are many ways to evaluate homes and everyone has their own way of doing it. The interview was very constructive and I feel like I got the answers I wanted and Angelo was very nice to offer them. I appreciate the time Angelo Alessandro gave me in regards to the interview and I was able to grasp his wisdom and knowledge about residential real estate. I know he is a very busy man and his business is important, therefore I thank Angelo for the time he spent with me for the interview.

Interview with Jeff Roberts, Co-Owner of Amli Associates Insurance of Chula Vista California (Independent Insurance Agency)

Jeff Roberts, of Chula Vista California has been around the insurance industry for over 30 years. While growing up, as well as in his career path, Jeff Roberts has experienced all that the insurance industry has to offer. This has led him to a successful career in the independent insurance agency field. Being that Chula Vista is in San Diego County a few things may be different from the Central Valley. Home values as well as the cost of living are much greater in San Diego County as we have all discovered. The Roberts are family by marriage and were kind enough to share a couple hours answering questions for me, which can be seen below. Enough with the small talk, I wanted to get down to the good stuff, which began as my family and I got situated at the Roberts’ home. During Thanksgiving break of 2010 I got the chance pick Mr. Roberts’ brain as our families gathered for a traditional Thanksgiving dinner.

Q: How did you get started in this insurance business? How would I get started in the insurance business?

A: “My father has had an established independent agency for 30 years or more. So, I guess you could say that I more or less inherited it. Having a connection to, or knowing, someone who either owns or works with an established agency or company is obviously a big plus for getting started. Even if you don't, though, you'll still need to seek a position with a company or agency that can offer an initial base salary since it will take time to build a book of business from which to earn commissions. I would recommend looking for openings even before you have taken the required classes or licensing exam. Companies will often hire you and help with the expenses of getting your license. Plus, gaining working experience along with the schooling, before you become a full-fledged agent is enormously helpful.”

Q: What qualities do you look for in a potential employee? Education level, experience, etc?

A: “Well, I've found that there are two important aspects to the insurance business; sales and service. On the whole, I would say that a person's education level is not of primary concern. You'll be spending a minimum number of hours getting the education credits necessary to qualify for the license, so you do have to have the ability to fulfill this requirement. But, honestly, someone with either sales or servicing experience will likely be considered equally with someone with a college degree. Overall, personality can carry you a long way since salesmanship and the ability to deal courteously and effectively with clients is a really good key.”

Q: What is the average turnover in the insurance industry?

A: “We're a small agency and so I haven't had much experience working around a large number of other agents. However, my guess based on experience would be that overall it's probably pretty high. Speaking as an independent agent, It takes time, sometimes years, and a concerted effort to build a book of business that will allow you to be self-sustaining. If you're lucky you might inherit or be bequeathed a book of clients by a company from which to expand. Building a clientele from scratch, though, is going to require more than a nine-to-five work effort. If you're not prepared for that, it can be initially pretty discouraging.”

Q: How do you and your employees gain clients?

A: “Like any sales and service business, marketing is going to be important. Getting your name out there is arguably more than half the battle. After that, I have to say that by far the best quality of clients will come through referrals. A big reason why servicing as well as salesmanship skills are vital. You may be the best deal closer around, but you retain business and get good referrals from clients that are happy with your service. Not to say that you shouldn't try to attract the walk-ins and shoppers. But, I've found that usually you don't retain these clients at as high a percentage level that you will the referrals. Those eager to shop around will usually go to where ever the lower premium is offered which means the work put into servicing won't pay off as well.”

Q: How has the economy changed the company in regards to homeowners insurance?

A: “It hasn't appeared to me that we've seen a significant decline in the overall volume of homeowner policies. Although, we did take a significant drop in the number of new Mobile Home policies we had been writing. Really, the biggest problem the market shift has brought is in adjusting the rebuild cost estimate, which the dwelling coverage limit is based on. It's difficult trying to explain to someone why the insurance coverage estimate is coming back higher than the current market value of the home.”

Q: How does the company determine if an expansion is needed?

A: “Expanding is primarily a financial decision. In other words, do you have the capital to do it either through a loan or savings? It's going to be a risk, though, because if you make the leap and business doesn't increase that could put you in jeopardy. But, if you reach a point where the service you offer is beginning to suffer due to lack of staff or space, then the decision could be made for you.”

Q: With the increase in foreclosure rates, what percentage of your competition has closed shop from 2007 to 2010?

A: “I don't think that the foreclosure rate has really caused any insurers to leave the state.”

Q: When valuing a home for an insurance policy how do you and your employees determine the value of the property?

A: “There's a-standard software from a company called Marshall, Swift & Boeckh (www.marshallswift.com) that is commonly used to determine the rebuild cost of a property. Also, some companies supply their own rating system. It's important to remember that the dwelling coverage is based on the estimated cost to rebuild the home and not on its retail value.”

Q: Do you or your employees consult with any Real Estate Appraisers?

A: “Not really. Banks will often invoke the appraised value or the amount of their loan when requiring a specific amount of coverage. However, I like to make sure that the insured knows that by law they do not have to carry insurance more than the reasonable estimate of the rebuild cost in order to secure a loan.”

Q: When do you expect property values to increase?

A: “I'm not expecting much increase over the next few years.”

Q: With the above being said, how would you describe the strength of the insurance industry today?

A: “The insurance industry is strong, and is really tailor made to withstand economic ups and downs. It's a basic necessity in the world of business and for anyone wanting to own homes and cars and the like. The concept of pooling risk in this manner is actually kind of brilliant. I personally find people’s rejections against a mandated health care insurance odd considering we basically accept the same government mandate when it comes to something like auto insurance. Some might say we choose to own cars, but it's pretty unrealistic to suggest that for basic working people of California that a car is a luxury. Maybe for some, but not for most. The point being that insurance works best with the greatest number of participants and regulation to that effect benefits the insured and the industry.”

Before picking Jeff Roberts’ head I asked him a few questions about the insurance industry when our families got together for his mother in law, my aunt’s birthday, but none like the eleven I recently asked. I learned a lot more than I thought I would in regards to how a successful agency is run and what goes into hiring, valuing, and how they maybe hurting from the economy. It was really interesting that they use pretty much the same programs appraisers use to value property. Although there is no right or wrong way in valuing property, there are many different programs that are out there to help value property. By asking many questions I discovered experience could evolve your valuing process into such an easy process that you know before you value. This is established by many years of experience, which we have seen in class by Dr. Hansz in his valuation examples. I felt like Jeff Roberts had taken many courses in appraisal, as the terminology he used was very similar to Dr. Hansz Finance 181 course. My parents have suggested to me to open an independent insurance agency after graduation after working with Jeff Roberts for a few years and after the interview it seems to be a bright option as their agency is still doing very well. I would like to thank Jeff Roberts and his father Jim Roberts for their time and knowledge of the insurance industry.