Behind the scenes in real estate

This morning at the Coldwell banker office, we started the day with the weekly agents meetings. We discussed the market climate and what marketing strategies are needed to boost agents networking abilities through postcards, mailing lists and joining community groups in order to widen their client base. Visual pictures the Coldwell banker name on marketing publication were felt important for branding.

            Before going on a seller’s house viewing, I worked with Maryann; who was the former manager of the office before becoming an agent. We prepared the documents before the meeting with the client. The Multiple Listing Service (MLS) enables all the properties on the market to be viewed and listed by anyone. This database allowed us to retiree the plot plan; seller’s disclose form (showing how much work has been done on the property) and lead paint disclosure forms, which are needed for properties that were built before 1978. These public records are information the town has gathered. An agent will use these guidelines closely for fine accuracy informational regarding square foot and tax records. 

            I took part in a webinar on safety practices in showing a house and the open house. You should always identify a person and make note of their vehicle registration. The property should never be advertised as vacant and the seller should hide any valuables which maybe on show.

            For the Home Inspection, the house should be inspected to ensure nothing is broken or faulty. The power should be on as well as the water, boiler, hot water, and fireplace. The dog should be caged and access to all areas should be made available by removing all personal items that maybe in the way. Inspections are good for sellers because they can boost their home reputation from a professional home inspector. A buyer can benefit from having any major problems highlighted and fixed which they may not have found.

            The first house we showed around was to a prospective buyer, I got to see how agents market the house to the client and bits of tips they do when they prepare the house for viewing. The following clients we met were to discuss their house that had currently been on the market for a while with 16 viewers but no offers. The advice was to lower the asking price but they were reluctant to as they have sentimental value to their home. This meeting went on for over an hour, with the conversation becoming very heated at times. I feel after seeing this side of the real estate business, it has shown me that it is very time consuming and conflicting when clients would take the advise given. 

401K

Today at Ameriprise Financial my task was to go through the client database and check to see which of these client had already had appointment meetings, which were currently booked in and which needed them. The financial advisor needs to assess and review clients’ portfolio in order to move their assets to a higher yielding investment base. There are two types of advisors, ones that get paid on the percentage of the profits made making them potentially wanting to take higher risk for greater gain and those which take a fixed payment for their services each year.

            I learnt more about what a 401(k) is as I’m including this in my retirement plan for “The Smiths”. A 401K is a retirement plan is set up by an employer to allow employees to make salary contributions on a post-tax and/or pretax basis. Some employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of the employees and may also add a profit-sharing feature to the plan. Earnings increase on a tax-deferred basis from interest, dividends or capital gains.

            If I were to get into the financial business I would have to take the series 7 test.

The test is broken up in a few parts:

1) Seeks Business for the Broker-Dealer through Customers and Potential Customers

2) Evaluates Customers’ Other Security Holdings, Financial Situation and Needs, Financial Status, Tax Status, and Investment Objectives

3) Opens Accounts, Transfers Assets, and Maintains Appropriate Account Records

4) Provides Customers with Information on Investments and Makes Suitable Recommendations

5) Obtains and Verifies Customer’s Purchase and Sales Instructions, Enters Orders, and Follows U

Of this exam there is a 72% pass mark with only 66% of takers passing it first time. Another intern in the office will be taking the exam in the summer. It will be interesting to hear from him how he finds it. 

Life insurance

         Today, I have been working on my financial planning portfolio for American Research and Management. As part of the portfolio I will be including life insurance. Today I spent the time researching the different options available. There are two types of life insurance term life insurance and permanent life insurance.

            Term life insurance is the most responsibly priced and is designed to only cover a person for a certain amount of time. The term could be 10, 20 or 30 years. This would suit someone who has other financial needs such as a mortgage or a child’s tuition to pay for. Each year a premium is to be paid to cover the risk of death during that year. Term life insurance has no cash value. The only way to collect anything is to die before the term life insurance expires. If death does occur, then the life insurance beneficiary will collect the death benefit of the life insurance policy, free of income tax.

            Permanent life insurance provides lifelong protection. This insurance will never end as long as the premium gets paid. It also provides a savings element that accumulates a cash value over a long period of time.

The other types of life insurance are:

·      Child life insurance

·      Accidental death insurance

·      Disability insurance

·      Final expense insurance

·      No medical exam life insurance

·      Long Term Care insurance

·      Critical illness insurance

·      Life insurance Riders

Life insurance is income replacement. The life insurance policyholder pays a premium, (monthly, quarterly, semi-annually or annually) in return for a life insurance company to promise to pay the death benefit, or face amount to the named beneficiary. It helps those that are left behind be able to be taken care of financially.

A client will need life insurance if someone depends on them financially. This could be:

Married with no children: They share financial obligations, so both spouses should have their own life insurance. If one was the die the other could cover shared expenses. It is also better for a couple to buy life insurance before they get pregnant in case there is birthing complications.

Married with children: Those with children should be left enough to have their living expenses, college tuition and marriage paid for.

Single parent: for a parent who singling is the primary caregiver, breadwinner, cook, chauffer, entertainer etc. they should defiantly take out a policy.

Stay-at-home parent: They make large financial contributions to the families like childcare, transportation, cleaning, cooking and household management which would all cost money if they weren’t there. 

Brookesly Borne

Today, I travelled from New York City back to Tabor; luckily there was Wi-Fi on the bus down so I watch the PBS video on the frontline documentary. The two-hour, part one documentary about the credit crisis taught me the background to the financial meltdown. I learn that a derivate is a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Brookesly Borne believed banks needed regulation. She was the chairperson of the Commodity Futures Trading Commission (CFTC) from August 26, 1996, to June 1, 1999 and the federal agency that oversaw the futures and commodity options markets. Borne believed that regulation was needed in the markets for derivatives but her warnings were opposed by other regulators. She was ignored and later a commissioner to the Financial Crisis Inquiry Commission (FCIC). The Federal Chairman, Alan Greenspan sided with the banks to leave them alone, he believes in having a lazier faire approach to the markets. Florida and Georgia experienced high demands of growth, which caused sub-prime mortgages to be sold in these areas more than others.

Many of these sub-prime mortgages could be sold on wall street, packaged together to create a higher yield and then have Moody’s rating agency give them an AAA. Predatory leading of mortgages started to become increasing common with interest rate as high as 42%. Loans were given out as high as the value of their house and loans given out to non-income families. Homeowners thought they brought protection with credit default swaps but no one assumed that house prices would fall as they did. The bank Goldman Sachs took advantage of credit default swaps by betting against their clients saying they would lose. They were able to make million when the crash occurred through this scrupulous prediction leaving many families homeless and bankrupt. Predication of the house price decline was perhaps at best regional; never did anyone think this would become a national regression. Currently there are thousands of vacant properties where no one really is sure who owns it in many cases many investors own a piece of the property so the property cant be sold on until the true owners are found. As of the financial institutions 4th largest investment bank; Lehman brother has crashed because of the sub-prime mortgages.

NYSE

          

 My day at the New York Stock Exchange was unforgettable! Tanya Sateika, who works as the programs coordinator for global affairs and government relations, greeted me. She explained that my visit request had come from Duncan Niederauer, CEO of the NYSE. I visited where parties occurred and where the managers would wine and dine their client in an elite restaurant on the 7^th floor. I was toured around where conferences are held; I visited three of the most important rooms, one of which had been used that morning for a meeting with the Italian ambassador. The main room had a conference table able to seat tens of people. This was the room where the original closing bell was rung. Down on the trading floor the atmosphere was actual quieter than I had imagined it to be. Tanya explained that six years ago the floor would have housed thousands of workers now only around 300 work here because over 90% of the transactions are done electronically.

To directly make trades in the NYSE, you have to be a member. But seats don't come cheap though. There are currently 1336 seats in the New York stock exchange and they cost about half a million each. The most expensive seat in the NYSE was sold in December 1st 2005 for the price of 4 million dollars. Anyone who isn't a member of the NYSE has to make trades trough a broker. I got to meet Jason Hardzewicz, he is the vice-president for equities working for Barclays bank. He kindly gave me a tuition session on what he’s role involves and how he manages the buyer and sellers. He job makes him a market maker as he decides at what price to sell the stocks at. Millions of trades are made everyday on the NYSE. The New York stock exchange is the largest in the world when it comes to market capitalization and the fourth largest in terms of listings right after the Bombay stock exchange and the London stock exchange.

          

  There was a lot of jargon and information given to me on that day, I realized that I have a lot to learn before this market become second nature to me, like that of Jason Hardzewicz where he is able to talk to me while controlling millions of dollars everything 100^th of a second, as that’s how quick the numbers are updated. I would love to go back to the NYSE one day in the future. I left with a few business cards at hand so I will certainly keep in contact for any future questions I would like to know. 

Financial crisis

On the bus to New York City I researched into the fundamentals behind the financial crisis. The synopsis of the disaster came from homeowners representing mortgages through their houses and investors representing money through large institutions such as pension funds, insurance companies, sovereign funds and mutual funds. Wall Street and Main Street bring homeowners and investors together through financial system.

            Investors look for good investments such as the US Federal Reserve through treasury bills. During the .com bust and September 11st the Federal Chairman, Alan Greenspan decided to lower interest rates to 1% In order to keep the economy strong. Investor didn’t not want a 1% return from treasury bill so instead the US banks borrowed money for 1%, leading to an abundance of cheap credit and surpluses from china, japan, and mid east making borrowing money easy. The banks when crazy with leverage borrowing in order to amplify the value of a deal. By using leveraging they could use $10,000 to borrow $990,000 making $1 million. They were able to sell them for $1100,000, pay back the $900,000 and use the $10,000 investment to make $90,000 profit. These enabled banks to make large quantities of money. Wall Street continued to take out lots credit growing their risk and still is able to pay back the loans. Families across American wanted a home; they only had enough for a down payment so they went to a mortgage broker who dealt with a mortgage lender. An investment banker wants to buy mortgages, so they would be sold to them in the masses and collected in a box of mortgages. This gave the investor all the monthly payments, he then would cut the boxes in three categories: Safe, Okay, Risky, this is called Collateralized Debt Obligation (COB). The mortgage repayments come in order from the safest mortgages. The bottom risky tray may not get filled so to compensates the safe tray gets lower interest rate while the riskier ones gets higher making the rate of return overall safer. Bankers will insure the safe tray, which is called credit default swaps; Banks will give these an AAA rating (very safe). Investment banker can sell safe ones to investors, okay ones to other bankers and risky ones to hedge funds. An investment banker can then make millions enabling them to pay of the loans and the other investors get more than the 1% treasury bills making them want more of the COD.

            However, everyone already has a mortgage that qualifies so the investment banker calls a lender who contacts the broker but he or she can’t find anyone. If a homeowner defaults the lender gets to keep the house with the idea that it will increase in value. The lenders add riskier new mortgages by not making the homeowners have a down payment or proof of income. The first time mortgages are called prime mortgages this new types are sub-prime mortgages.

            Everyone was becoming richer so no one worried, but when the homeowner begun to default on their monthly payments the investors turned these mortgages into houses as the back up security. This increase produced a greater supply than demand in the houses market so house prices fell. When homeowners realize they were paying back a $300,000 mortgage on a $90,000 worth property they decided not to continue to pay of the mortgage and walk away from the house. The investor then tried to sell CDO to another investor but they refuse so most became bankrupt and the homeowner’s then had a worthless investment.