Tony Bareta is the last guy you’d think would get burned by the faltering real estate market. He’s an expert on the subject, a senior vice president of industrial real estate for the Brookfield office of NAI MLG, which is the state’s largest commercial real estate organization.
But these days, he’s stuck with two investment condos that just won’t sell. Nothing is moving the one-bedroom Third Ward unit he bought in The Broadway Condos in 1998 and rented out for years. Not a new kitchen, nor a new bathroom. “I put in everything I thought people would flock to,” says Bareta.
The condo has sat, unsold, for the last year. Yet the $147,000 asking price doesn’t represent much gain from the $90,000 Bareta paid for it when you factor in all the money he’s sunk into it.
Bareta is one of many real estate agents and brokers who bought their own sales hype – that property values only rise, that real estate always beats the stock market in the long run, and that everyone needs a place to live. They sold themselves and sunk their own money into investment properties.
Now, the merciless market is whacking them from three directions: The value of their personal real estate holdings is likely declining; they can’t keep paying for those properties on commission income that’s shriveling from reduced sales; and, like everyone else, they’re having a hard time relieving the problem by selling the properties.
Nobody knows how many brokers are trying to sell their own properties. While state regulations require brokers and agents to disclose their ownership of a property that’s for sale, the number of such properties is not tracked by the Metro MLS, the broker-owned listing database.
Mark Rohde, however, has a clue. Judging from the steady stream of chagrined residential brokers turning to Ceco, his Wauwatosa-based real estate investment and brokerage firm, he says many colleagues are suffering optimism hangovers.
Four years ago, Rohde says, some agents rushed to buy residential rental properties with the zero-percent-down easy money then flooding the market. Discarding the timeless standard of buying for cash flow (that is, a place with rental income that exceeds mortgage payments, taxes, maintenance and improvements), the real estate pros gambled that the value of their properties would keep rising.
We all know what happened. Values are dropping, expenses are rising, and now the monthly costs of these properties are a black hole in their owner’s bank account. And refinancing? That’s impossible, given the financial industry meltdown.
Rohde has the same recurring conversation with these agents, who likely mimic their own customers. When he states the value of their property, “They say, ‘I paid more than that for it.’ They need a third party to tell them the truth.”
Some brokers still can’t believe that taking their own advice has turned sour. “I’m like a doctor, I’m just trying to help them stop the bleeding,” Rohde says, noting that some brokers have second mortgages on properties and must pay out of pocket at the closing just to get rid of them.
Ginger Gill, an agent with the Hales Corners office of RE/MAX Realty 100, followed her own advice in 2005 when she bought a condo in the Park Shore development on South Lake Drive in St. Francis. It had a beautiful lakeshore location, after all, and she paid a preconstruction price of $275,000.
But now, the place is too big for the recently widowed Gill, and the taxes and condo fees are too high, especially with her commissions dwindling. So she put the condo on the market six months ago for $300,000, to deafening silence.
Realty Executives Integrity agent Jean Whitstone is another broker who couldn’t resist the once-hot market. She’s lost track of how many houses and condos she owns. One day this fall, she sold three and had just put two more on the market.
Why sell in today’s downward market if, as Whitstone says, the properties are throwing off cash? The tax benefits offset her drop in commission income, she says, but the real reason is she just had too many properties – “more than I care to have.”
Still, she likely won’t wait long to wade back into the market. “I still believe in real estate, which is why I own it myself, and I encourage my family members to invest in real estate,” says Whitstone, who says she turned a “reasonable profit” of about 20 percent over the five years she owned the just-sold properties.
It’s an advantage for customers that brokers themselves invest, literally putting their money where their mouth is, she contends. “It’s very helpful to our clients and customers.”
Still, those customers might want to add one more question when deciding on their real estate agent: How’s your own property moving?