Aaron Norris is joined again this week by Bruce Norris and Molly and Chris Silva. They are realtors and investors based in Riverside, and they followed in the footsteps of their father Steve Silva. Bruce Norris worked extensively with him over the course of his career. The family has been involved in everything from REOs to real estate investing.
Episode Highlights
- How many days does the typical listing agreement last?
- Have expired listings been a big part of Molly and Chris’s properties?
- Has there been a mood shift in regards to house design, or has it been in place for a while?
- What is it like for them being a real estate investor in Quadrant 1?
- What is the market like in Quadrant 2?
- What were equity sellers doing in the market back in 2012?
- Has technology helped with expired listings?
Today’s buying strategy they will be discussing is expired inventory. Aaron asked if the typical listing agreement these days is 90 days. Would it expire after 90 days and the seller would move on from there? Molly said she tries to go 6 months, but probate listings are typically 90 days. She said she tries to go 6 months, but things will sell quickly if they are priced correctly. Bruce said when something expires, especially in Quadrant 4 where prices are escalating and in a good market, then it has some hair on it somewhere. Aaron asked why these things expire, which Molly said it is because the buyer has changed also.
When speaking of market turns in 2006 and 2007 when we just came off a boom, it is easy to see how things can linger. Prices are starting to drop, builders have built too much, and it is a fun time to be working with equity sellers. Bruce said they still have yesterday’s price in their mind, but they also have a big equity position. This happened to be the case when Bruce got into the business in 1980. Interest rates were starting to climb to where they were going to be at 17%. In 1980, Bruce did not know anybody, and they did not have any training. To work with this, he got an MLS book with expired listings. He called people and told them what had expired and if they were still interested in selling and would consider an all-cash offer. 95 out of 100 get lost; and Bruce made the 100 phone calls and got the 5.
It is a lot of work, especially when you do not know anybody and do not even know what you are saying. However, he understood the basic premise that his things were cooler than other people’s things. Cash was better than equity. It was always in his mind that if he could give you cash and solve the issue, that’s the most important. Some of the deals they put together were really cool real estate without the debt on them. Bruce bought a couple houses at $650 grand that were normally over $1 million. 65% was always their formula. When he interviewed people, he would ask them why they did what they did; but he assumed it was to their advantage. They had something to do with that money that was better than the equity.
There were people who had consultants. Bruce had an offer on a street called Sirron (ironically, Norris spelled backwards), a 7,000 square foot house that was listed for $1,050,000. Bruce made an offer at $650. The guy who sold it had a call center made up of employees making cold calls. He had an accountant he ran this by, who told him it was no good and should not be sold to Bruce. This really bothered him that night because he remembered thinking this guy looked at it seriously on his own, so there must have been something he missed. He spent a while putting together a 7-page presentation and walked in the next day. He was a hard guy anyway because of his business and asked Bruce what he was doing there. Bruce said he told him he was not interested for all the wrong reasons. He asked him to sit down with him for a minute so he could tell him, and the guy agreed to do it.
The Quadrant does not matter as much, but this guy already had a big cash position. The way Bruce would find out was not by asking him how much his house was, but how much houses in general went for in that area. All of a sudden, he could translate return. If it was worth $200 grand, is now worth a different amount, and you put down $20 grand that gets turned into $300, then it could work. It gives them an excuse to say how much of a percentage they made on it every year.
Quadrant 1 was that little area where people had tons of equity. If it was matched with opportunity or a problem, they said yes 10 times a month. Aaron asked if he completely stopped focusing on equity sellers around that timeframe, which both Bruce and Molly said yes. She said this was why she had such a tough recovery. This time around, it was because people were cranking money out of their properties and the prices dove so fast the only game in town was the REOs. The short sales did not even come about until later.
In the 1980s, you had a rise in foreclosures but no price hit. They never became a big piece of the market, so you had people with a lot of equity but could not sell. Eventually when we get to the point where the turn happens, people could be in the 2009-2010 prices and still have that same ability with really low interest rates. It all boils down to whether you are willing to have a conversation with 100 people to get 5 maybes. It is tough as you will talk to people who will never interact with you again. It has to be part of your makeup.
Bruce asked if expired listings have been a participant in many of their properties. Molly said they have not really had to, but now they have a growing team and giving them an opportunity. There are so many opportunities, including empty-nesters. Bruce was a young man, around 29, when he and his wife Marsha decided to adopt Sarah. He had a property listed that he had bought from somebody, and it was his first investment property. When they decided they were going to adopt, they suddenly found out they needed an extra bedroom. All of a sudden, he was a motivated seller because he had tied up a house that was on Spruce Street in which they ended up living. It was $130, and he had tied it up for $70 grand. It was exactly what he needed, but he needed to churn the $70 grand out from somewhere.
It was listed by someone who received an offer from an investor who had it $20 grand less than what it was listed. He was mortified and did not even want to tell him the offer until they had a conversation where he told Bruce the offer. He had his residence at the same time the other person had his rental, so Bruce could look at the numbers and say yes to both. This agent who was embarrassed about getting the offer got two commissions and almost fell off his chair when Bruce told him he would take the offer as long as he would buy his residence at the same number. Bruce’s circumstances had changed, and people tend to get lucky because they are active. They are in the position to where when those circumstances change, they are the go to person. This could include whether they made the phone call that day or did a mailer in the past year, and people remember these things.
Molly said she had gotten two calls on properties the day she was interviewed for this show, and it is one of those things where you are the go to person if you put yourself in that situation. You have to get a shot at this when it is nobody else’s inventory at this moment. Aaron asked if most of the expired listings in this turnaround come from a specific location. Both Molly and Bruce said they come from overprice, and Molly said condition is so important right now. You could be priced to the market where it needs to be even for the condition with your average FHA grade home. If the home is in decent condition, the seller may not take a cash discounted offer, but first-time buyers are not interested anymore. The name Molly gave them is the HGTV syndrome, and buyers just want those nice, pretty, flashy houses.
Bruce asked if there has been a mood shift or if this has been in place for a long time. Chris said when they were doing the REOs, everything was a beige-out. Almost everything was neutral when it came to the color homes were being painted. Now everything is so pretty and polished because of HGTV. A lot of the inventory you would see on the market were investor homes. Now investors put in new windows if they can and wood flooring. They are really nice and pretty. Then you have “Joe’s” house down the street that he has lived in and does not have that fresh look. There is not enough buyer momentum to not ignore that house.
This is like Quadrant 1 in a way. There is a psychological change; and when you are an investor you have to really recognize this. Back in 2005, you did not have to worry about anything. Your home was going to sell to somebody. If it had a front door, was on a dirt road, and was a manufactured home, you probably got an offer. It was hotter than a firecracker; and when this changes, you have to be ahead of the curb. You do not want to get stuck with this, and it’s not going to be the obvious inventory to buy.
Aaron asked about being an real estate investor in Quadrant 1 and if they write an offer through their realtor or just direct. Bruce said if he is going to call the people directly, he will probably make the offer directly. If he is calling about an REO, he wants to cycle that offer back around since a relationship is more important than the property. He wants to call the agent and say he has a lender who is interested in a listing he used to have and write the offer through you. This is smart because you are capturing the relationship, which is more important than the property. If the Silva Group listed the property and it expired, Bruce said he would go back to the Silva Group and ask them to write the offer. If he calls the lender directly and they are interested, he will do it.
Molly said most agents are smart enough not to put the homeowner’s number in the MLS before it expires. If you go back to that agent, then you can ask for their number or have them call the person. Bruce said one of the listings that expired for him was five new homes in Colton. In 1980, there were five new homes listed for $225 grand where he called the owner directly and made a blind offer. It ended up being $125, and he took it. You find out a lot by trying and asking; and this was one those cases where a huge discount was available and nobody knew.
In this day and age, there are agents who will do anything to get a listing. They will say your property is worth 50-100% more just so they can get the listing, then grind them down on price. These expire all the time. Aaron asked if the HGTV effect has not wised up the sellers to that nonsense, although Chris said everyone makes money on television. Expired listings in a bust market are probably mostly REOs that were not priced right. However, Bruce said he would not even use this strategy in a bust market. Aaron wondered why you would even have an expired listing in that market. Bruce said if he ran an ad in the Riverside Press and it turned from 1989 to 1990. His calls doubled, and all of a sudden he was a therapist. Nothing was selling, everyone was upside-down, and he went home not wanting anyone to call anymore. This was why Bruce had to figure out where the deals went and realized they were hiding in the auction company or REOs in the MLS. He had to change his strategy since it was not working and could take an enormous amount of time. Then you do not have time to do what actually makes sense.
Quadrant 2 is the recovery mode, sort of a short phase. More short sales are going on, but expired listings are still common. Aaron wondered why you go into more short sales at the bottom of a market and if it is a pricing issue. People have already gotten beat up pretty bad. When you are at the bottom in 2011 and go into 2012, it may still happen a little bit. Molly thinks it would be equity-based and involve sellers that will try one thing, but not sell if it does not work. She assumed there would be an equity position there for those who had it. Chris said it could be wishful thinking on their part.
Bruce said you could also have the lenders still asking for something they will not get. They will then have that moment where they decide to be realistic. Unfortunately, this usually happens with the next listing agent. So many times Bruce would have an offer, then suddenly another offer went pending that was less than his current offer. You are wondering what monkey business happened here.
Aaron asked what the equity seller was doing back in 2012, whether they were licking their wounds or excited to exit. Molly said they were happy to get out at that point and ecstatic. Someone who listed a house across from Molly’s told her she bought it in 2005 and asked what she paid. Molly told her it was about $630,000. When she asked Molly what it was worth today, she told her $550,000. The lady tried to tell her she was sorry, but Molly said she was happy about it. She never thought she would see it where it is at right now.
In Aaron’s neighborhood, the homes are KB homes, tracts built in 2007. This was right at the wrong time, and people were buying them at $500 grand. There are very few of them left, but the people who held on and did not do a short sale or foreclosure are just starting to sell and still not making their money back. The fact that they hung in there at all really says something and is pretty incredible.
Bruce said the one thing about calling expired listings is that it is great practice and free. It is really no different from a mailer with 100 responses. 95 people may not even consider talking to you, but these are not the ones on whom you focus your attention. He said when he used to get chewed out by somebody, he would say that he appreciated their response because he noticed how he would have to go through someone who says no to get to someone who will say yes. He would say he was glad they were done and it was time to buy a house. Chris said they are going to be a lot more responsive than you getting 1,000 phone numbers and calling random people. You will get a lot more reception from people who already wanted to sell their house. If you call them that day or that week and it expires, that will be tough.
Aaron asked if they have a pre-expired listing list, which Chris said if you are not licensing you can call every one. It is really an ethical issue because where Chris and Molly work, they are a licensing agent. They cannot call or mail things out until it expires. Then it is open and fair game. Interestingly, although they cannot call or mail out, their corporation can. But if Chris or Molly let people know of a property just sold in their neighborhood and they know of friends who want to buy, then that is okay. It really depends on how aggressive you are with what you are doing and what you are looking for. Aaron receives a lot of postcards like this where whenever something sells in the neighborhood that is popular, they blanket it.
Now here we are in Quadrant 4, 2004 and beyond. Aaron asked what some good excuses are these days for expired listings. We have discussed the HGTV effect and how it is not quite perfect or to the point where you plant a flower in the front and receive $50,000 more. This means we still have a ways to go. Bruce asked what would be wrong with pairing with a realtor and diving into this. You make as many calls as you can stand in a day, but you have some good conversations where even if you do not put the listing together they may have a referral that will stick. You cannot ignore this.
For the gentleman who came into Bruce’s bootcamp and made the cold calls, this was one of his methods. It worked, and he has bought several properties at good sized discounts. Nobody else was doing it, and nobody is doing this from the realtor’s world.
Before the interview, Bruce had talked about new agents he has the opportunity to train. Aaron asked if he is training them to be investor friendly. Molly said yes, and getting them here has been difficult. It is more methodical and not your open house weekend where you find a buyer and show them property at yours or the buyer’s leisure. It is methodical: getting on the phone, doing mailers, and going out to talk to people. It is about putting the systems in place, learning the market, learning the area, and diving into the world of real estate. It is actually easier than being a regular real estate agent. If the people listen, they can make money.
Once they had a few agents listen to them and follow their systems, they realized they could make money at this. Their goal is to get more people like this so that it is even easier on them. Aaron asked what the feeling in the market has been. He asked if a lot of realtors have been coming into the space now. Molly said it is different and they have changed a lot. They just opened their own boutique brokerage, and it is all about the vibe and culture. The millennials are the market now, so we have to change as they change. There are a lot of younger agents coming in and changing things, and a lot of them are hard workers. They are used to responding the way the clients are expected to get responded, which is right now and not in person. This is interesting. If you are an agent who has been around for 30 years, you are thinking that contacting the people tomorrow is okay when it is not.
It is so hard now. Agents are looking at systems all the time, and it is expensive, but this is what they have to do to stay on top. They are owners now and fairly young owners compared to a lot of brokerages here in town. There are some younger ones, but you see the youngers ones that are going strong getting everything done while the older ones are petering.
Aaron ended by asking about technology and if it helps with expired listings. The seller is becoming a little more knowledgeable, so you have Zillow telling them what their property is worth. Chris said with their background in doing the REOs, they had to thousands of thousands of thousands of BPOs. They are basically like appraisers and know how to adjust. He has a Fannie Mae appraisal form he can fill out with the adjustments and go in to show them. He can show them true value and blow any other agent away who does not have the background that they have, which is an REO background. As far as Chris’s role, he is the investor out in the field looking at the properties and getting his hands dirty. Molly is in the office taking the phone calls. She is the voice and the people person.
Thank you for joining us for our radio show with Chris and Molly Silva. If you need to get a hold of them, Molly’s number is (951) 313-7369. Their website www.silvagrp.com.