Home Staging Issues

Here is an article from Bankrate.com that shares many of my concerns about home staging companies and how they manipulate buyers into making offers on properties.

There is nothing wrong with making your home look as good as possible when you go to sell it.  My concerns are with the process that makes them look good on occasion.

Most home staging companies do an excellent job in giving even the most average property a special "je ne sais pas quoi."  But home staging often gets VERY expensive.  A friend of mine recently paid $500 for an "initial consultation" and more than $3,800 for the actual stage.  This sum is in line what most staging firms charge.  This article sites a final sum of more than $6,000.

So what are my concerns about staging companies?  I have four of them.

First, many homebuyers think that staging companies are miracle workers.  If you own a home you should spend money painting, landscaping, and especially CLEANING EVERYTHING before you think about hiring a staging company.  All this is far cheaper and much more effective if you want an offer.  Here is great advice from the NAR on the subject of staging and getting your home prepped for sale.  Here is even more super advice from Realtor.com on the same prepping and staging subjects.

Second, many homes do not need staging.  The technique works best on expensive homes.  Sure, you can sell a 500 square foot studio condo with a good stage but why spend the money to try?  Staging is ideal in luxury settings where rooms are not distinguishable without ornamentation.  Can you tell it's a music room if there is no piano in it?

Third, the interior design skills of stagers are often excellent but, in my opinion, sometimes cross the line into manipulation.  For example, putting smaler scaled furniture into a room to make it larger is an effective technique but it really is just an attempt to fool buyers into believing a room is bigger than it actually is.  Many buyers see through these techniques and they can backfire.  This article discusses the home staging backlash and I will admit I have one too.  When I visit a home that smells of French vanilla coffee and freshly baked bread I immediately go searching for the source of REAL ODORS, like cat urine and mildew in the basement.

But mostly fourth, I think that home staging is a panacea born of the recent super ultra buyer's market where sellers are beyond desperate for offers.  When you have thousands of home owners burying statues of St. Joseph in backyards in the hope this will find buyers, home staging seems a reasonable alternative.

The vast majority of home staging companies I have encountered do a great job.  They have an eye for color, lighting, texture, and decor that most average people (like me) do not have in abundance.  But their fees can often get costly and it is important to never forget they are not miracle workers.  Home stagers can often get a higher price for a great property but cannot turn lead into gold if your condo or fixer property is a stinker.  Follow this advice when you go to sell your properties and you can't go wrong.

Silver at 31-Year High

Yesterday in this blog I discussed gold breaking $1,502 per ounce.

Today silver hit a 31-year high.  You have to go all the way back to 1980 to find silver at today's price of $46 per ounce.

1980?  Ring any bells out there?  Inflation in the United States in 1980 was a staggering 13.5%.  What signals do you think the market is sending when the price of silver rose 8% THIS WEEK alone?

In other cheerful financial news, gold closed for the first time over $1,500 an ounce and set a new daily high at $1,509.

The U.S. dollar under the brilliant leadership of Bernanke, Geithner, and Obama hit a new 3-year low today against virtually every other foreign currency.  The dollar is being crushed around the world as our Federal Reserve Bank keeps a zero interest rate policy while the rest of the world is drowning in dollars and building barriers to keep them out.  Read this absolutely stunning editorial from today's Wall Street Journal on how the Fed is destroying the U.S. dollar as a reserve currency.

Why should you care about any of this?  You don't own gold, couldn't care less about silver, or the fact that oil broke $112 per barrel today.  The Wall Street Journal opinion piece cited above ends this way:

At an economic town hall this week, President Obama blamed "speculators" for rising oil prices. He should have mentioned the Fed and his own Treasury, which have encouraged the world to invest in hedges against the falling dollar. Chairman Ben Bernanke and Mr. Geithner have deliberately pursued a policy of unprecedented monetary and spending stimulus to reflate the economy and boost asset prices. The bill is coming due in a weak dollar, food and energy inflation, and the decline of U.S. economic credibility.  (emphasis added)


I could have written this myself.  

Gold Tops $1,500 an Ounce

I recommended that my readers buy gold at $330 an ounce in 2006.

Today, gold topped $1,502.

The get-rich-quick creative real estate gurus who encouraged you to buy overpriced single family homes to flip them in "the greatest time to invest in real estate ever" in the same year made you how much money?

Oh yeah.  My advice to you was FREE.  How much they did charge you for that home study course and the seminar ticket on preconstruction condo flipping and lease/options?

Oil today is upwards of $109 a barrel.

Gasoline is way above $4.00 per gallon in many markets, including my own.

By summer, many markets will be selling gas for over $6.00 per gallon.

Who in their right mind thinks this is a recipe for economic growth?  Real estate investors will get killed on suburban development in this type of market.

We are seeing an unraveling of the American middle class right before our eyes.  The financial class is running scared towards gold and other commodities while the working class gets higher taxes and inflation and collapsing asset values on all the equity they own, starting with their 401(k)s and homes.

The American Middle Class is being wiped out and all the Obama Administration can do is lobby for S&P not to release its debt ratings on U.S. Government bonds.

If gold hits $2,000 an ounce and oil goes to $150 I would not be surprised at all.  Here is another author that agrees with me.  The children play in Congress spending the hard earned money of others while negotiating how they can borrow trillions of dollars more.

Thank You, Mr. Bullard

St. Louis Fed President James Bullard said today that the Federal Reserve should not exclude energy and food prices from the inflation numbers it targets.

Thank you, Mr. Bullard.  I have been taking that very position in this blog for years.  Here is one such article I wrote on January 28, 2011.  The Fed's core inflation target rate and especially how they calculate it borders on the indefensible.

The Fed does not count food and energy prices in its core inflation calculations.  The Fed correctly argues that the prices on these commodities are volatile, and therefore sharp swings up and down tend to skew the average.

But what the Fed does not realize is that part of inflation is psychological and that food and energy make up the two largest retail purchases most consumers make each and every day.  People buy cornflakes and milk, gasoline and heating oil, steak and potatoes.  All these necessities and many more have been skyrocketing in price lately.  Government officials telling the public there is no inflation when any trip to the gas station or supermarket shows you otherwise makes our elected servants look silly.  It's like the old Groucho Marx line when caught by his fiancee in bed with another woman:

"Who are you going to believe?  Me or your own eyes?"

The Fed needs to get real and start measuring the prices of things real people in the real world buy with real dollars they earned at real jobs, and not build models designed to make a failed expansionist monetary policy look more effective than it really is.

Real Estate Guru Traps to Avoid

Here is an excellent article on how those smiling sleazy creative get-rich-quick real estate gurus STEAL your money.

The real estate gurus I see these days are proclaiming today as the greatest time to invest in the last fifty years.  Low mortgage rates, lots of motivated sellers, and tons of surplus inventory, it is argued, means that THE TIME IS RIGHT to invest in real estate today.

Of course, they said the same thing from 2002-2007 too.  Virtually all of the get-rich-quick gurus were wrong on the real estate bubble, like they are wrong about just about everything real estate.  Remember these real estate geniuses aren't.  These phony peddlers make money selling you real estate books and courses, not making money on actual properties.

Many of these gurus have lost huge amounts of money on whatever real estate they did own.  Many like Foreclosures.com guru Alexis McGee are broker than broke and just pretending to be real estate geniuses so they can continue selling many more real estate courses.  I have yet to see one apology or one statement from any current guru admitting to their losses and how bad the advice they gave from 2002-2007 actually was.  To her credit, personal finance guru Suze Orman comes close.

In addition, these gurus are SUFFERING because people have wised up and are not paying $2,995 for a two-day seminar on flipping properties anymore.  Some gurus I know about have seen sales fall 90%.  Some of the gurus are now peddling continuity programs since their target market may have $199 a year to buy online courses but not much more.  No matter the cost, some people just aren't buying.  One very famous guru unveiled a continuity program and much to his shock less than one hundred people across the entire world signed up.

The simple truth is that most (not many, MOST) of the real estate gurus who sell get-rich-quick schemes on flipping properties, lease/options, wholesaling, and all the other subjects are not genuine investors.  Far from it, most are just slick salesmen who know how to appeal to the greed and desperation of their lower middle class target market, the so-called "newbies" who come to these seminars without much knowledge about the real estate world or how it works.

THEIR HOME STUDY COURSES AND SEMINARS ARE WORTHLESS.  Here is some advice from the Federal Trade Commission, real estate professionals, and real estate writers on why you should run away from these get-rich-quick hucksters.

Thanks for the article, Peter.

Tigrent Warning

Tigrent, the Cape Coral, Florida company that promotes seminars using Rich Dad Robert Kiyosaki's name in my opinion has not turned over a new leaf after showing real estate guru Russ Whitney the door.  This fact is disheartening to me since I am a fan of Robert Kiyosaki's books and hoped that he took the idea of reform at Tigrent seriously after the revision of last year's licensing agreement and all the negative press he accumulated after the Canadian Broadcasting Corporation did a hidden camera expose of a Tigrent event.

I recently attended a Rich Dad Education seminar exactly like the one being marketed in the photo to the left.

I found the presentation to be deceptive, blatantly false at times, and sometimes even offensive.  Here is a review of the very same type of Tigrent event that I attended from the Motley Fools website that agrees with me.

The event I sat through was held outside Seattle at a hotel near the Southcenter Mall.  It was a Wednesday afternoon about 1PM and more than 75 people showed up for the free presentation, a testament to how much drawing power there is in the Kiyosaki name.

Tigrent was not mentioned once in nearly three hours of speaking time.

After a short video film featuring Kiyosaki, a slick speaker that must have been left over from the days of Russ Whitney took the floor, spinning all the usual get-rich-quick tricks.

Every man has a rich man inside of him.
Information is power.
This room is for winners.  Losers can leave now.

A poll of the audience through a show of hands revealed that about two-thirds of the audience had never traded stock options before.  About ten percent had never traded online before.

The speaker was selling a two-day weekend seminar to do both using a software trading platform subscription service.  "Trading is as easy as following the color of the lights.  Red means sell.  Green means BUY, BUY, BUY!"

The examples of successful option trades the speaker said he used to get rich were blatantly deceptive.

In one case, he showed a broker receipt proving he had earned $1,200 in one day on a Google option trade.  "You have heard of Google?" he mockingly asked the crowd.  "How many of you would like to make $1,200 in one day even before you wake up on the West Coast?"

What he didn't tell the blue collar audience was he bought a deep in-the-money ("ITM") put with a two-month expiration date on Google for $2,400.  He needed $2,400 in cash or margin buying power in his account to do this.  He suggested that he SOLD the option, or there was a credit into his account.  The receipt he showed on the screen showed he was long the put, not short.  STRIKE ONE.

No stockbroker or investment advisor would ever advise the middle class people in the audience who can't afford $2,500 losses on options to pursue such as strategy.  The SEC has "suitability rules" for investors and the purchase of deep ITM puts on volatile and expensive stocks like GOOG does not fit the requirements.  Here are the SEC rules.  Also check NASD Rule 2310 and its equivalents.  The CBOE (the place where options are really traded) just doesn't have a page on investor suitability on its website it has a whole library on the subject!

Telling an audience that readily admits (and looks like) it has had little experience with stocks and options to spend $2,400 of hard earned money on an option that expires in two months and would represent a complete loss of capital is reckless and not suitable for most of the people in that room on my day.  The presenter focused on the gain of the transaction and did not mention the high risk of it, especially to an audience that would have been floored by the knowledge that they needed to spend $2,400 up front and might lose every penny of this sum in less than two months.  STRIKE TWO.

So did the speaker make money on this transaction?  I don't know.  What likely happened here (assuming the receipt is genuine) is that there was a sharp drop in Google's stock and since the put was deep ITM the option acted like a proxy for the stock.  If this scenario is true, the speaker just got lucky.  The market could have risen the next day and that $2,400 option would have been worth $1,800 or much less.

It is obvious why this speaker chose Google as an example.  The stock price is so high and along with that come high option premiums.  He gloated about how safe a company Google was ("It's worth $184 billion!") and how much he made in one day, $1,200, which sounds like a fortune to the working class people in the audience tethered to a time clock.  For many of the people I saw and spoke to that day, $1,200 is two or three weeks of pay and a virtual fortune to some.

GOOG closed today at $574.18 per share.  A deep ITM June 2011 $620 put sold for $5,360.

If the speaker had used Wal-Mart stock as an example,   At $52.98 per share, a deep ITM June 2011 $60 put could be had for $755.  You might earn $100 on a 10% one-day decline on the stock.  This example just doesn't have the same impact as Google but the risk is also remarkably lower.

Tigrent as a company is a mess.  The stock trades at fifteen cents per share so the market seems to agree. The company recently filed Form 15 with the SEC and has suspended its reporting obligations.  In other words, Tigrent has "gone dark" which makes its management far less accountable to the shareholders, which number 131 at Tigrent.  Going dark is also usually a sign that a company is mortally wounded.

To make matters even stranger, the company said this in its press release dated March 4, 2011:

We expect that the Company will realize significant savings by taking these steps, as we continue our efforts to control costs as part of the difficult work we have undertaken to restructure the business," said Charles F. Kuehne, Interim Chief Financial Officer of the Company. 


But here is the SEC filing of the same day.  It mentions Form 15 but also says this:

On March 4, 2011, the Board of Directors of Tigrent Inc. (the “Company”) made the determination to increase the annual base salary of James E. May, Chief Administrative Officer and General Counsel, to $200,000, retroactive to January 1, 2011.  The 2011 annual base salaries for all of our named executive officers for pay periods ending on or after January 1, 2011 are listed in Exhibit 10.01 and are incorporated herein by reference.

So on the same day the company is suspending its SEC reporting requirements and going dark presumably for financial reasons, the company is RETROACTIVELY increasing the salary of the company's general counsel to $200,000.  Maybe Mr. May earned the money but the timing is terrible.

STRIKE THREE.

Please Mr. Kiyosaki.  I'm a fan.  I recommend your books to my readers.  Please run away from this company.

Shadow Housing Inventory

This article from the Wall Street Journal says it all.

Nine months of supply plus 8.6 months of additional supply is 17.6 months of current housing inventory.

Normal supply, or market equilibrium, is usually six months of inventory.

The difference between 6.0 and 17.6 is the size of the Grand Canyon if you are trying to sell homes.

Residential housing prices are going nowhere soon but flat or down.  Of course, each individual geographic market has its own unique demand and supply characteristics, but on a larger level the trend is your friend and it is hard to swim against the tide.  (Intentional mixed metaphor.)

Too much supply, and a rapidly shrinking pool of qualified buyers, plus higher interest rates on the way does not make for a healthy operating environment.

Residential housing in the U.S. does not look too good anytime soon from an investment perspective.

Commercial real estate, however, is another story.  I'll be discussing this sector in greater depth soon in this blog because, quite frankly, the housing sector is dead money for the time being while some commercial sectors are red hot and smoking.