Nick's Real Estate Blog

Bank of America has started a new foreclosure/lease program where they will allow some delinquent home owners transfer title back to BofA (forgiving their mortgage) and in return,BofA will lease the home back to the owner at or below market rents for up to 3 years. In my opinion, this "Mortgage to Lease" pilot program will never work and is merely a way of trying to regain favor in the public eye.

Why do I think it will never work? The same reason why "Deeds in Lieu" are never a successful (and rarely sought after) alternative to foreclosure. The typical person who is behind on their mortgage isn't just delinquent on that debt. There are often second mortgages and liens (HOA, Contractor, etc.) that may be placed against the house as well.

If a bank takes title back without foreclosure, they assume all of the debts and liabilities that may be attached to the home. There not going to do that.

I applaud your effort BofA...but I will be extremely surprised if this becomes a viable solution (or one that has any kind of impact) to the foreclosure situation we are currently in.

I just returned from the Coldwell Banker GenBlue Convention in New Orleans. I attended several great courses including the CRS 112: Guiding the Buyer in the Distressed Property Market. This course offered good statistics and facts regarding the distressed property market:

100% of all Real Estate Owned (REO's) will be sold

50% of all owner occupied homes will be sold

Average market price across the U.S. is $200,000.

The Treasury Department predicts that this market will continue for another 10 years.

Currently their are 6 million homes in default or underwater.

30% of sales in 2011 were distressed properties. That is 1 in 3.

Beurau of Census states that 1 in 10 houses are empty.

25% of buyers in the market today are investors.

These statistics can look bleak to some, but to others they represent a great opportunity.

If you are a buyer, foreclosures represent a great buying opportunity.

If you are a real estate agent, listing and selling foreclosures is a great business opportunity.

This was originally posted on by business blog at www.nicksbusinessjournal.com, but I thought the underlying principle could be useful and applied to our real estate business...though you may not want to ask your sell to do a money back guarantee or 30 day free trial. But you may want to give it some thought and see how this could be applied to either your sellers, or to your business as you recruit clients.

Loss Aversion Definition - Peoples tendency to strongly prefer avoiding losses to acquiring gains.

Concept: Psychologist quantify the pain of loss to be twice as strong as the joy of gain.

For instance: Lets say your stock portfolio is up this quarter netting $10,000 in gains: You are pretty happy.

Next quarter your stock portfolio is down, losing $5000 in value. You are devastated (and probably ready to find a new investment adviser).

How does this affect your business? Loss aversion applies to all of us; you as well as your customer. Your customer has a finite amount of money, which can either be saved, spent on your product or service, or spent on something else. You are competing for that dollar against all other options they have.

They hate to lose. They don’t want to walk away feeling like the made the wrong decision by spending their dollar on your offer and not the other options. If they fell they make the wrong decision it will far outweigh the feeling of joy or satisfaction they will get from your product of service.

This could keep them from making a purchase in the first place.

How to Counter Act Loss Aversion: Make them feel like a winner.

Offer a guarantee of free trial (two potential options).

A money back guarantee will help alleviate their fear of loss because they know that they could simply return it if the do not like it.

A free trial will allow them to test the product before buying. If they like it they will buy it knowing that they are getting good value for their money.

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