Posted on 09/10/2007 7:41:08 AM PDT by 2banana
Real estate ride: From big bucks to bankruptcy
Even top-selling broker can't make his bills, is forced to shut offices By Joe Schoenmann Las Vegas Sun
People lose homes in Las Vegas every day because they can't pay the mortgage.
But when real estate agents and brokers start hitting the wall financially, it perhaps is a sign of even more troubling trends in the home sales market.
Despite Clark County's apparently robust economy, home sales are doing so poorly that the first major real estate broker here has filed for bankruptcy court protection .
Jimmy Dague, who has sold real estate in Las Vegas since 1978 and whose business was the No. 1 worldwide in sales for Century 21 from 2002 to 2006, filed last week for Chapter 11 bankruptcy protection from creditors while he reorganizes to pay off his debts.
The 54-year-old said that even when his business was Century 21's top seller in 2006, he still lost money. Dague said that's because his sales fell 60 percent from 2005 to 2006, but he kept the same number of staff - and the same overhead - in his nine offices.
"This is the result of an exuberant market and us growing and, honestly, I had signed leases for nine offices. Now I have five," he said. "As you can imagine, the four landlords are not happy."
Rather than fighting it out in civil court - "I can't afford to fight the market and pay attorneys, too" - he went the route of bankruptcy. In court filings, Dague lists assets of between $10,000 and $100,000 and debts totaling between $100,000 and $1 million.
A year ago, he said, 700 real estate agents worked in his nine offices. Today, he has five offices and about 500 agents . He also has cut 50 percent of his hourly staff.
Dague predicts that during the next two months, the Las Vegas market's army of more than 16,000 real estate agents will drop by 2,000 - measured by the number who opt out of paying their annual $400 dues to the Realtors association and hundreds more in Multiple Listing Service access fees.
To hear the stories of real estate agents getting out of the business - their existence in Las Vegas has for so long seemed as fundamental as that of casino workers - is jarring.
"Wow," said Jeremy Aguerro, principal of Applied Analysis, a group that conducts market analyses for developers. "Is it a harbinger, a sign that our economy is shifting?
Even those with passing glimpses of the real estate market here know of its renowned growth since 2003. In 2004 alone, housing values increased 54 percent. Trying to buy a condominium was so difficult that landlords were converting apartments en masse into condos at premium prices.
Those were glorious times for sellers , and everyone with a few bucks in his pocket was taking real estate courses and getting on the sales bandwagon.
And who would have thought it could end? No where else does the economy seem as robust as it does here. An estimated $40 billion or more of development is happening and planned in Clark County during the next decade. By 2012, roughly 45,000 new hotel rooms are expected to be built - and each hotel room is estimated to lead to the creation of 2 1/2 jobs. Downtown Las Vegas is growing up and out of decades of blight, with condo projects on the rise and businesses moving into areas slowly shedding their decidedly downscale image - and reality.
And jobs are being created for people who need places to live.
But for reasons that have added up to what 's been dubbed the "perfect storm," home sales have dropped drastically in the past two years. New home sales, according to the Greater Las Vegas Realtors Association, fell 42 percent from July 2006 to last July, with a 41.3 percent drop for existing homes.
The cause s ? Home prices inflated beyond the means of those who would normally buy them, rising interest rates and a halt in buying by investors.
And in Dague's words, "perception."
"If someone thinks if they only wait a few months, they'll be able to get that $400,000 house for $350,000, they're going to wait it out," he said.
Are they right to do that?
"Right now, they probably are," he said.
The price of a $400,000 home needs to drop 12 percent to reach $350,000. Already within the past year, the average home sales price has dropped 7 percent.
And the number of homes on the market has swelled to about 20,000, so there's more competition, which drives prices down. To compensate, businesses such as Dague's Century 21 have to do more advertising, which costs more money.
Which leads, in some cases, to bankruptcy.
"I think there will be more; I can't imagine how the smaller brokers are paying their bills," Dague said. "Maybe they can fund their overhead from their own personal savings. But I honestly don't believe there are five companies in town right now that are very profitable. There's just not enough sales going on."
Dague recounts the glory years in numbers of home sales. "In '05, we closed 6,000 sales, 5,945 to be exact," he said. "In '06, 3,700 sales. In '07, we'll do probably around 2,000."
Last month, there were about 1,300 home sales in the Las Vegas area; that was divided among 1,400 real estate offices.
"Do the math," Dague said. "That's about one sale per office ."
Does he think it's going to turn around? And if it does, will that be any time soon?
"Whatever I'd say, I'd be shooting in the dark," said Dague, sighing. "There are a lot smarter people than me out there already trying to figure that out."
Joe Schoenmann can be reached at 229-6436 or at joe. schoenmann@lasvegassun.com.
That don't pay the bills...
I sure in the [bleep] missed that.'-(
wow!!!
there is a reason the little companies charge less
typically if you are paying less than a buck its cuzz you are getting less
you are further a head to stay in the stream where the buyers are,you will get a higher price in less time
how long til its time to buy?
At LEAST two years
Boomtowns are a product of free markets. Vegas has been a boom and bust town many times.
Interesting. Thanks for posting.
................and, some of us don’t have offices : )
why would you think two years?
two years for Vegas?
two years for USA?
two years Globally?
two years for Teheran?
Many who ran up to Vegas in the early 00s were following the curve and now have 1900+ payments and collecting 1100 in rent. It's a renters market.
We get our commission from the listing agent. Usually half of the commission. We're seeing 3-4%. A year ago 3 would be the top and the norm was 2.5. Some agents actually search the MLS by the comp (the commission offer from the other agent) and won't show a house that's under 2.5%. It's unethical, but it's happening.
So listing agents are talking to sellers about bumping the commission to attract the buyers agents to show the property.
We usually charge 4% to list. If the seller will pay more, we give it to the buyer's agent to draw them to the house.
If the market turns it should be slow building and you can jump in. You have to decide your goals like cash flow or appreciation or both and keep an eye of what's happening in your locale of interest. All areas don't perform the same or at the same time.
In some areas December and January are slower than the rest of the year and a good time to get a deal on a long-time listing.
If you don't know what to do, find someone you trust and tell them what you're interested in and they will keep you current.
The was a large article in the Tampa Trib a few days ago about the top agent/broker in Clearwater Beach that is in deep do-do because she was investing as well as selling. She is holding severl multi-million properties that she can’t sell and creditors are knocking. Oh well....
Like the guy on TV says: Bulls make money, Bears make money, Pigs get slaughtered...
There is a HUGE amount of ARMs readjusting in the next 16 months. The fallout will take another 12 months.
I would not buy real estate anywhere in America for at least two years. Renting is much cheaper and real estate has NOWHERE to go but down. Yes - there will be a very few select markets that buck the trend.
Real estate commissions are a rip off. The fees these people get for selling houses are outrageous! And they fight tooth and nail to squash new ways of buying and selling real estate.
What the heck did they do with all the money they have been raking in over the past several years? Did they think this party would go on forever? If they made no plans for possible lean times, then they have only themselves to blame.
thank you for your opinions
you have done this for a while
your observations of nov dec are seemingly global in the western world
I know where I am at, based on an average year comprised of 50 years of data bear out the same message
what cap rate can you buy commercial properties for?
seemingly,the apartment/rental accomodation mkt doesnt cash flow and wont for sometime.
are the contractors still building?
dude,
your income is a rip off
stock brokers are a ripoff
bankers/lawyers/shoe salesmen/cosmetic sales people
they are all ripoffs
bankers collectively have a large part of the current credit crunch ^ripoff^
there are loads of levels of rip responsibility right down to appraisers and builders
back to the realtors...get out - in to business for yourself and have a look at the op costs. Look at the stats for the average salesperson, most who enter cannot afford to stay in the industry. Try being an owner/manager and tell me what you see.
And yes, there are fliers (exceptions who everyone loves to talk about) and,as fliers, they too have an opportunity to crash. AND, yes when you get too brave, you frequently neglect the common sense and principle that gave you your initial success. Try doing some living and you can find this out yourself.
the perp
It's tough to get a good cap rate in SoCal. Ranges from 5.5-12 the ones I have seen lately. Small retail centers. We do commercial and I have some retail strip clients now. On a million dollar purchase they were going to be negative about $700 per month, but the projected appreciation over time was over 40,000 per year.
Our personal philosophy is buy and hold. Long-term appreciation.
For cash flow with little emphasis on appreciation, we have pout people into out-of-state properties.
Best wishes!
I started with 4% with everyone telling me to get 6 and I'm still at 4. As prices increase 4 is a good number and I have built in a good repeat and referral business, so I don't live for 1 transaction.
I will say that I have more than earned my money. Some people can do their own transactions and don't need me, but they're few and far between
I'm in Cal where you get sued for thinking about doing something. The forms we use are so numerous and technical, I don't know how transactions are ever complete. I earn my money and sometimes, more.
The problem that I have with buyer's agents is that the more the buyer pays for the property, the more the buyer's agent makes. This is a totally bass-ackwards incentive.
Of course you have heard this many times.
But has anyone tried to set up an arrangement where, as the buyer's agent, you receive a share of any price reductions that the seller finally settles for?
Some companies are inflexible in their commission schemes. We deal with the situation we're presented.
I'm more likely to deal with you on my commission if I'm getting 3% of a $2 million dollar house and doing your loan, than if I'm getting 2.5% on a 250,000 condo and not doing your loan.
We're already fairly tight on the loan usually taking 1% in the back and no costs to you up front.
Last year, my wife got a refi, purchase and purchase loan commission of $60,000, she gave her client an $8,000 gift to buy furniture. Lost's of ways to give back.
If you can do your own transaction approach the owner and get what you can, but if the owner has an agent, you might as well have one. The commission is going to that agent alone or split between the two.
Would you take one-third of the difference between asking and final selling price, in lieu of any commission split?
Even lenders are holding the line on asking porice more than usual because foreclosures are often at 100 LTV and they don't have much room to go down to their net/net.
After I do the market analysis and such I might take your deal.
Why would you want to offer than when I may be able to save you the money anyway and get my commission from the other agent? If the house is already listed, the listing agent already has a commission agreed to. I'm going to get half of that anyway. The seller is going to pay the same fee wheteher or not I get half.
It's not really a disincentive for me to get a lwer price, if I can. I want you to come back and tell your friends about me.
Time to buy in 1 to 5 years. The foreclosure bargains will hit next year. But prices will be flat to slightly lower for the following 4 years or so. At least in the bubble pop markets like Vegas. No hurry at all... Unless you think interest rates are going to rise. It is still better to get a house for $250,000 at 6.0% than for $200,000 at 9.0%
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