Well, the Covid nightmare is coming to an end; however, the housing nightmare may just be starting. As an REO specialist, I speak with banks all of the time, and the word on the street is: once the moratoriums are lifted, a flood of foreclosures will hit the market, and artificially high home prices across the county will plummet.
So, people are fearful this summer. Homeowners who have not been paying their monthly mortgages and renters who have stopped paying rent, wonder when the hammer will come down. Others who are strategizing their home and investment options want to make the right decision and not get caught in a falling market.
Timing is the key; the adage “buy low and sell high” will likely ring very loud in the impending months ahead. Most banks I talk to today believe the housing market will collapse after the peak Summer selling months are over; some think closer to the end of the year. All believe it depends on how long the moratoriums last and if their current policy of eternal moratoriums will finally end or not. I am telling all of my buyers to wait until the end of the year to buy after the crash. My sellers, I tell them that July will likely be the peak or the high mark of this current seller’s market. Don’t fear, do your homework, and time your decisions wisely!
Alabama has the 2nd lowest property tax in the country, only behind Hawaii. In comparison, Mississippi and Florida are in the middle of the pack. However, Florida has no state income tax, whereas both Alabama and Mississippi will tax your income on the state level.
I said BOM, not bomb as in an explosion or a very long pass in football. Asset managers (AM’s) hate BOM’s or properties that fall out of escrow and are referred to in the industry as “back on the market.” Of course, it’s not just AM’s that hate BOM’s; everyone does. A lot of work and thought goes into the offer and acceptance process. When there is an acceptance, the parties are generally happy and have reasonable expectations that the deal will close. However, two major obstacles need to be overcome before the deal can be consummated.
The first obstacle is financing. Most deals are contingent on the buyer applying for and getting funding for the purchase. If the buyer cannot qualify for the deal, she can pay all cash and close. However, that seldom happens because most people lack the normally hundreds of thousands of dollars in cash; that is why they are getting a home loan in the first place. The second obstacle is the home inspection contingency. Most deals allow the buyer to do a home inspection of the subject property. Some states have parties negotiate terms after the home inspection. In contrast, other states have a two-step process wherein the original contract, the parties pre-inspection determine an amount the seller will pay for any repairs needed, and then after the inspection, a new round of negotiations occur where the pre-inspection repair amount will be honored or increased based on the findings of the home inspection.
So you see that a lot can go wrong before the deal actually closes. This is why many REO companies or banks require all-cash and an “as is” clause in the contract. They are trying to lessen the chance for a deal to BOM by taking away two of the major reasons property falls out of escrow. However, these terms are not very practical for higher-end properties where the amount of people that can pay all cash is greatly diminished. Or in times where real estate values are down, and inventories are high, buyers may be scared away from “as is” deals, thinking the seller is trying to hide something and there are so many other properties on the market, they don’t need to fool with it.
Probably the best solution to keep your AM’s happy and not put them through an agonizing BOM is to make sure the buyer is well-qualified (pre-approved, not merely pre-qualified) for the loan and that any issues regarding the property are fully disclosed up front and known by the buyer. This should minimize buyers’ rejection of a loan in the middle of an escrow and an unfortunate surprise of discovery during the home inspection. Therefore, your deal will consistently close, and everybody is happy!
Jeremiah 33:3“Call unto me, and I will answer thee, and shew thee great and mighty things, which thou knowest not.”
Born in Whittier, California, Jerry took over the family business (a small construction company) at a young age and successfully ran it for years before relocating to the Gulf Coast. During that same period, he sold real estate in the Los Angeles market by day and went to law school at night, graduating with Moot Court honors (JD).
He now lives in the Gulf Coast area, specializing in the luxury residential real estate market. After graduating from the University of Alabama with a Master’s degree in business administration (MBA), he launched a successful local boutique luxury real estate company to offer his expertise and unique skills to the local Gulf Coast community.
On a personal level, Jerry enjoys travel, the symphony, tennis, soccer, Church-related activities, and family events. He looks forward to serving his clients and making the Gulf Coast a better place to visit and live!
Update: On January 8th, 2021, California released the results for the October 2020 California bar exam. Jerry’s name was on the pass list, which completed a 20-year odyssey that began with the University of Phoenix (UOP) and ended with the announcement of a passing score on one of the most difficult bar exams in the country.
Growing up in California, working with his Dad in the family construction business, Jerry never imagined that he would be an attorney, practicing law one day. However, after taking over the family business and running it for a while, Jerry decided that he wanted to do something different. At first, he wanted to get an MBA from a major university and move ahead in some kind of career in business. But, running a business and supporting a family, he could not just drop everything and go to school. In August 2001, yes, just 2 weeks before 9-11, Jerry enrolled in an online school (UOP) to get his BS in Business Administration. This would be the first step in earning an MBA from a major university.
Just 3 years later, Jerry graduated early from UOP with honors. Now, he could go after the big prize he was seeking all along, an MBA from a major university. In 2004, he applied to both UCLA and USC and got onto the waitlist for UCLA. However, ultimately he did not get in either school. Jerry never took junior high and high school seriously, believing that he would never pursue education as he was slated to take over the family construction business and run it for the rest of his life. His grades from that period reflected this, and although he graduated from high school, the academics were lacking. Therefore, it wasn’t easy to get into a major university.
Not deterred, Jerry decided to reapply to both colleges the very next year, only to be denied again from both schools. Then, Jerry saw an ad from Concord law school, and the rest was history. He enrolled in the online law school in 2005 and graduated in 2009 with Moot court honors. Jerry never thought about being a lawyer, but when he hit a wall in 2005, the idea of practicing law intrigued him. Over the course of the 4-year online degree, Jerry absolutely fell in love with the law.
After graduating from law school, Jerry sat for his first bar exam (July- 2009). He did not get the results until November of that year, and by that time, the country’s financial and housing collapse was in free fall. Jerry’s family business was a causality of this crisis. The results in November were also negative; this gave rise to a new opportunity. Jerry’s wife is from Mobile, Alabama, and Jerry fell in love with the South, and from the time the two were married (Thanksgiving, 1999), they both wanted to relocate to the South. However, with Jerry’s family business in California, it did not seem that this dream of moving to the South would ever be fulfilled. Of course, when the business failed in 2009, nothing was keeping him in California anymore. Thus, on December 25, 2009, the family (now a family of 8-Mom and Dad with 6 kids) moved South.
It was a struggle for a few years in Alabama. One of Jerry’s bright lights was the privilege and opportunity to sit for the California bar exam (CBX) and finish what he started in law school, get his license to practice law. At this time (2011), they were living in Mississippi (right over the border from Alabama) when Jerry flew out to California to sit for the CBX for the second time. Although the experience and excitement of re-engaging the law were spectacular, the result was not, although the score did improve from the first try.
Later that year, Jerry was accepted into the University of Alabama (Roll Tide!) for a roughly 2-year executive MBA program. Finally, he got into a major university and was poised to fulfill his original dream of getting an MBA from a major university. The difference between now and 2004 and 2005, applying to the California schools was a law degree. This likely pushed him over the finish line as far as getting into a big school. Jerry graduated in 2013 From Alabama and had fulfilled the dream!
But now, he still had unfinished business with his law aspirations, a license to practice law. Concord law school is not an ABA law school, which means the only bar exam Jerry qualified to take was in California. Thus, before he could sit for any other state’s bar exam, he first must pass the CBX. Therefore, in 2017, he flew out to California again to sit for the third time. Although the score was much improved, the results were again negative.
In 2019, Jerry and his family (now 9 kids) took a trip to California to see family and friends and sit for the CBX for the 4th time. Instead of flying to California with 9 kids, they took the family van (commercial grade 15 seaters) and drove over 3,000 miles to the Golden state. Well, although we had a blast seeing the family and friends again, I found out in May that again I was unsuccessful in taking the CBX, and the score was actually lower than my last attempt.
So, in 2020, I focused on building my current business (real estate) and was resigned to put the law dream on hold for a while. Then, in March of last year, COVID-19 hit, and everything change. Now, my new business (real estate instead of construction) was threatened, and the future was uncertain. But, not wanting another crisis to go to waste, the CBX again bounced up on my radar. So, I took 5 months and every free second, between running a real estate company and raising 9 kids, to study at finally fulfill my dream to become an attorney. Because of COVID-19, the exam, normally administered in July, was moved to September, then to October, gave examinees the option to take the exam online, at home if they choose to. Well, this was a boon to me because now I did not have to fly to California and sit in a room of 600 plus nervous test-takers to try for the 5th time to pass the CBX. Not only that, but they rearranged the format of the test and dropped the passing score by 50 points. I had a real wind at my back, and after taking the exam in October, I felt confident that I passed. But, again, the long wait (from October 5-6, 2020 to January 8, 2021), all the doubts and negativity set in, so by the time the results came in, I was convinced that I failed again and was not sure if I would ever try again. Then, at 8 PM (central time) last Friday, the results were out; I PASSED, and I was, of course, ecstatic. Finally, after 20 years, both the MBA and the law dream came true!
Jerry ran a family business by day and went to law school at night, graduating with Moot Court honors (JD). He graduated from the University of Alabama with a Master’s degree in business administration (MBA) in 2013. In October 2020, Jerry sat and passed the California Bar Exam and will be sworn-in, January 2021 to practice law as an attorney.
REO Asset Managers (AM’s) often rely on their real estate agent in the field to hire competent contractors to make necessary repairs to foreclosed properties in order to bring them to market. Today, many asset management companies (AMC’s) have their own in-house contractors which the real estate agent is required to use. Either way, the real estate agent has the responsibility to either hire good contractors or make sure that the AMC’s contractor is doing a good job and is on time with the repairs.
If you are tasked with picking and hiring a local contractor to make repairs to a REO sent to you by your AM, please do your due diligence and get the best guy out there. This means not necessarily hiring the cheapest contractor around, but the one that will offer the most value (top notch work at a reasonable price). Here are some tip’s: 1. Make sure that the contractor has a state license. This shows a level of competency and you also have leverage in case the contractor blows it. You can send a complaint to the contractor state license board if the contractor refuses to make it right. 2. Get and call their references. It is one thing to see a contractors ad with generic “happy clients”, it’s another thing to actually call a former client and get a real feel for the level of competency of the guy you’re getting ready to hire. 3. Use your regular and proven contractors, however, keep on top of them to keep them honest. I will still call a couple of other contractors in the field for bids on occasion to make sure my guys prices are still in line. Also, I will look at their work or have an expert look at it from time to time to confirm competency and I will speak with city/county building inspectors about specific projects and get overall reputational feedback on the contractor from them.
Lastly, here is the best tip for you and me: 4. Just be honest! Don’t hire contractors and get a kickback from them (this is likely illegal in most or all states), don’t hire a friend or family member (conflict of interest). Be professional and honest and hire the best contractor (best value) out there and serve your AM well! Honesty is really the best policy and by the way, it’s good for business too. Am’s love real estate agents with real character and will stick with you even during the tough deals!