Gonzo home sales and prices

gonzo home sales and prices
Gonzo Home Sales and Prices? NAR Housing Expectations 2017 infographic (from realtor.org)

Everyone seems to be excited about this week’s Case-Shiller home price numbers reported for February.  Even the title of the April 25th press release sounded a little giddy: “The S&P Corelogic Case-Shiller National Home Price NSA Index Sets Fourth Consecutive All-Time High” (spindices.com).  Yes, the Case-Shiller 10-city and 20-city composite indices are close to the 2007 level.  But before you become intoxicated by reports of gonzo home sales and prices and run off to sell your home, here’s more to the story.

Gonzo home sales and prices

Gonzo home sales and prices depend on the market.  According to the recent Case-Shiller release, Seattle, Portland, and Dallas topped the charts with annual index gains of 12.2 percent, 9.7 percent, and 8.8 percent respectively.  Not surprisingly, Seattle and Portland have been the hottest real estate markets over the past year.  Tampa’s and Cleveland’s housing markets are at the opposite end of the spectrum with decreases of -0.5 percent, -0.3 percent during February; while Miami’s home price index was unchanged.  Washington DC reported an annual gain of 4.1 percent, with a 0.2% gain reported in February.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices stated:

“There are still relatively few existing homes listed for sale and the small 3.8 month supply is supporting the recent price increases. Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates.

Housing’s strength and home building are important contributors to the economic recovery. Housing starts bottomed in March 2009 and, with a few bumps, have advanced over the last eight years. New home construction is now close to a normal pace of about 1.2 million units annually, of which around 800,000 are single family homes. Most housing rebounds following a recession only last for a year or so. The notable exception was the boom that set the stage for the bubble. Housing starts bottomed in 1991, drove through the 2000-2001 recession, and peaked in 2005 after a 14-year run.”

Gonzo home sales and prices are dependent on local real estate.  It’s true, housing inventory is lacking.  At a time when homes should be coming to market for the spring season, the Greater Capital Area Association of Realtors Montgomery County single family statistics for March 2017 indicated that there were -1.8 percent less new listings compared to the same time last year.  And the total number of active homes for sale are -16.4 percent less than the same time last year.  Although June is usually the peak time for home sales and prices in our area, home sales increased 17.9 percent month over month, and is 11.7 percent higher than the same time last year; while average home sale prices increased less than 1 percent (gcaar.com)!

Holy shades of 2005, Batman!

Housing stats sound eerily like those before the housing bubble crash.  But this market is different in many respects.  Consider that housing speculation is not as prevalent as it was at that time; homes are not being flipped in a matter of days in most areas.  And home buyers are more sophisticated and savvy than they were in 2005; home buyers are more demanding, as well as sensitive to home condition and price.

Yes, it’s true that house values are increasing.  Yes, home sales are breaking records.  But not all homes sell.  You should realize that that home sale stats includes data of homes that sell.  Homes that don’t sell are not included in the numbers of closings, nor are they included in home sale prices.

Homes that don’t sell tend to be overpriced for the home’s condition, or neighborhood.  Sometimes, the physical location of the house is not ideal; for example, situated next to train tracks.  If you’re selling your home this year, don’t get greedy.  Get a professional opinion on pricing your home correctly; over priced homes tend to not sell quickly, or not at all.

Pricing your home may not be as easy as you think.  Empirical research has confirmed that there are many variables that affect sales price.  Factors that impact home sale price include the home’s location, condition, amenities, and market timing.

If you want to sell your home quickly and capitalize on home sale trends: consider repairing deferred maintenance issues, making updates, and don’t take home buyers for granted.  When making repairs and updates, don’t go for the cheapest quote because it will likely show.  Also, make sure your contractors are licensed.

Home buyers are just as savvy as you, so any attempt to deceive will backfire and hurt your sale.  Focus on broadening your home’s appeal.  Consider making your home turnkey, since most home buyers are looking for a home they can move right in and without making immediate repairs and updates.

For a guide on a successful home sale, take a look at “The magic of 4 to sell a home

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Curb appeal can boost home sale price

curb appeal
Curb appeal (infographic from nar.realtor)

If you want to increase the sale price of your home this spring, you will no doubt focus on the interior.  But how does the home’s exterior look?  You’d be surprised about the amount of necessary cleaning, decluttering and repairing around the exterior of your home.  But don’t skimp on the exterior home preparations before your sale – research conclusively shows that improving your home’s curb appeal can increase the sale price by as much as 8 percent!

An empirical study conducted by Chen, Evans-Cowley, Rutherford, and Stanley (An Empirical Analysis of Effect of Housing Curb Appeal on Sales Price of Newer Houses. International Research Journal of Applied Finance. 2013, Vol. 4 No 11, p1407-1419) was the first to demonstrate the relationship between a home’s sale price and curb appeal.  The authors also discussed how home buyers’ preferences in a home’s exterior influence the home’s sale price.  Besides curb appeal, they suggest that the home’s architectural elements could also be important in the final sale price.  The idea that today’s modern designs are more desirable, and likewise costs more money, is only transitory; such that today’s designs could become trite and tired in twenty years.

The study used a seven-point “attractiveness” scale to determine how respondents viewed the attractiveness of a home’s exterior.  They concluded that there is a relationship between a home’s exterior attractiveness and the home’s sale price.  In fact, they reported that a one-point increase in their scale corresponded to an 8 percent increase in the home’s value!

Home buyers make assumptions about your home’s interior based on the appearance of the exterior.  An unattractive exterior can repel home buyers before they even see the beautiful and updated interior.  Attract home buyers and boost your home sale price by focusing on cleaning, repairing, and “finishing” your home’s exterior.

Basic landscaping can make a huge difference in your home’s attractiveness.  Having too many plants, or letting them grow too much can make the home’s exterior appear crowded and unkempt.  Make sure your lawn is full but manicured throughout your listing.  Properly trimmed trees not only look tidy, but allow home buyers to see your home from the street.  Appropriately placed and trimmed shrubs and flower beds can accent the home’s architectural design.

Check your home’s siding.  Replace and repair any missing or broken siding pieces.  Freshen up siding by power cleaning, or painting.  Even if your home has artificial materials as siding, inspect window frames and fascia boards; these areas are often neglected and may need urgent repair.

How does the deck look?  Unless you maintain the deck regularly, chances are it may seem dull and tired, and may need to be re-treated.  Even if your deck is made of artificial decking, check the railings.  Hire a licensed contractor to repair and secure the deck as necessary.

How about the sidewalks and patio?  The sidewalk and patio can be easily cleaned by power washing.  Cracks in the sidewalk and patio are not only unsightly, but can be a trip hazard.  Cracks are typically caused by rain and water runoff, but can be repaired.  Consider also sealing the sidewalk and patio to prevent further water damage.

Finally, consider finishing the exterior to make your home more appealing and cordial.  Much like staging the home’s interior, you can use similar principles to increase the exterior’s attractiveness; such as placing appropriate chair(s) and potted plant(s) on the porch, deck or patio.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Demand better consumer financial protection

consumer financial protection
Consumer Financial Protection and Dodd-Frank (infographic from CreditUnionTimes www,cutimes.com)

In an effort to reform the Consumer Financial Protection Bureau (consumerfinance.gov) to become a better steward of consumer protection, H.R.5983 – Financial CHOICE Act of 2016 was introduced during the last congress.  The effort to compel oversight on the now embattled agency, as well as provide for a panel of decision makers (in lieu of a single chairperson), is unfortunately highly politicized.  As financial consumers, we should demand a better and fair protection agency serving without political motive.

From the Executive Summary of the The Financial CHOICE Act
Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs:

SECTION THREE: Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors.

  • Change the name of the CFPB to the “Consumer Financial Opportunity Commission(CFOC),” and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis.
  • Replace the current single director with a bipartisan, five-member commission which is subject to congressional oversight and appropriations.
  • Establish an independent, Senate-confirmed Inspector General.
  • Require the Commission obtain permission before collecting personally identifiable information on consumers.
  • Repeal authority to ban bank products or services it deems “abusive” and its authority to prohibit arbitration.
  • Repeal indirect auto lending guidance.

Some have hailed the CFPB because it was created out of good intention. There is no question that the CFPB has done a great job in collecting and publicizing consumer complaints.  The announcements of consumer complaints seem to be a public airing of consumer grievances, which sometimes signaled forthcoming action from the agency in a specific financial sector.

However, critics contend that the CFPB rules have made lending more burdensome for both lenders and consumers by increasing bureaucratic red tape.  It has also increased the cost of lending to consumers by adding levels of compliance measures that are now embedded within the lending process.  Critics have also complained that the CFPB’s enforcement is not fair and unequal in focus.

Critics are becoming increasingly vocal, not only because of the sometimes invasive rule making, but more recently of how offenders are chosen and penalized.  Jacob Gaffney’s article for HousingWire (Former CFPB attorney pretty much just confirmed the worst fears of the mortgage industry: housingwire.com; January 3, 2017) earlier this year discussed two genuine concerns about the CFPB:

1) “The CFPB targets lenders for enforcement action based on opaque internal decisioning;” and

2) “Monetary penalties seemed determined by revenue, not equalitarian application of said enforcement action.”

Gaffney quoted Ronald Rubin, a former enforcement attorney at the Consumer Financial Protection Bureau, (from a December 21st 2016 piece “The Tragic Downfall of the Consumer Financial Protection Bureau” published online nationalreview.com) as confirming these concerns.  For example, the Wells Fargo fake consumer account scandal, one of the most egregious consumer scandals post financial crises, was not addressed by the CFPB (until it was too late) because Wells Fargo was allegedly “not a target of the agency at that time.”

Referring to the complaint database, Rubin stated:

The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue…rather than those with the most complaints.”  He further stated: “Targets (of the CFPB) were almost certain to write a check… Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.

The recent PHH Corp v Consumer Financial Protection Bureau case highlighted some of the alleged abuse of power by an agency with no oversight.  US Appellate Judge Kavanaugh wrote in his opinion:

That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case

…This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

We’ve followed the career of the CFPB since it was established in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Shortly after the financial crisis, we eagerly anticipated the new agency to help those who were the target of abusive lending and foreclosure practices.  Since its inception, however, controversy has embraced the agency.

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Listing agent secrets you need to know

Listing agent Secrets

There are a number of topics that your listing agent probably won’t discuss with you, or can’t properly explain.  Here are several listing agent secrets that you need to know:

Your agent won’t sell your home

home for saleYour home will likely sell to a home buyer who is represented by a buyer agent. This notion is supported the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers (nar.realtor), which reported that 88 percent of home buyers used an agent to buy a home.  The remaining 12 percent of home buyers purchased through other means, including with the help of the listing agent, or even a FSBO.  Although your listing agent may claim to have sold the most homes in the neighborhood, the truth may actually be that they are only facilitators.  The buyer agent who actually “sells” the home is labelled the “selling agent” by the industry.

Buyers are not finding homes in print

listing agent secrets
Agent secrets (infographic from nar.realtor)

Print advertising no longer is the means of selling a home. More information from the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers indicate that having a nice spread in a magazine, or posting open houses in the local paper is probably a sales ploy to get your listing.  The Profile reported that home buyers reported how they found their home as follows (nar.realtor):

  • Internet: 51%
  • Real estate agent: 34%
  • Yard sign/open house sign: 8%
  • Friend, relative or neighbor: 4%
  • Home builder or their agent: 2%
  • Directly from sellers/Knew the sellers: 1%
  • Print newspaper advertisement: 1%

Bigger is not better

Another one of your listing agent secrets is that the larger your agent’s brokerage or team, and having a high number of homes actively listed may actually be detrimental to your home sale!  An empirical study by Shiawee X. Yang and Abdullah Yavaş (Bigger is Not Better: Brokerage and Time on the Market; The Journal of Real Estate Research; 1995, Vol. 10, No. 1, pp. 23-33) reported the following results:

  1. The amount of agent’s commission is not indicative of your home’s time on market;
  2. The size of the listing firm does not affect your home’s time on market;
  3. Homes listed and sold by the same firm (i.e., dual agency) does not reduce time on market;
  4. The more active listings your agent has, the longer your home may sit on the market because they do not devote to the time to your sale.

Yang and Yavaş suggest that the larger the listing firm, the more incentive to “cheat” days on market by circulating new listings within the firm before entering it in the MLS, which also increases the chances of a dual agency situation.  “Private placement,” or pocket listings can have similar dual agency results.

Dual agency could cost you

Chances are that your listing agent doesn’t totally understand dual agency, and therefor may not be able to explain how it affects your sale and potentially your sale price.  The Maryland Real Estate Commission’s “Understanding Whom Real Estate Agents Represent” disclosure states:

The possibility of dual agency arises when the buyer’s agent and the seller’s agent both work for the same real estate company…The real estate broker or the broker’s designee, is called the “dual agent.” Dual agents do not act exclusively in the interests of either the seller or buyer, and therefore cannot give undivided loyalty to either party. There may be a conflict of interest because the interests of the seller and buyer may be different or adverse.

One of the listing agent secrets is that dual agency may not be beneficial to you, and can even lower your home sale price.  There are a number of empirical studies that indicate conflicts of interest and other issues that arise out of dual agency.  But a study by Joachim Zietz and Bobby Newsome (Agency Representation and the Sale Price of Houses; Journal of Real Estate Research; 2002, Vol 24, No 2 pp. 165-91) found that a home’s sale price drops about 3.7 percent when the listing and buyer agents are from the same firm.  They stated:

the fact that buyers may obtain a lower price by engaging a buyer’s agent from the same firm as the listing agent raises the issue of whether or not the listing firm is shortchanging the seller. The evidence appears to suggest that the agency relationship between seller and listing agent may be compromised.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Transforming real estate – whom do agents really represent?

transforming real estate
Real estate transformation over time (infographic from movoto.com)

The continuously transforming real estate industry continues to change because of two forces, consumers and real estate professionals.  It would seem intuitive that the forces should be complimentary, but a deeper analysis might suggest conflicting interests between consumers and real estate agents. Whom do agents really represent?

Efficiency, although not openly stated, is a main goal of both home sellers and real estate agents.  Home sellers want to sell their homes efficiently (as quick as possible and for the most money); while the real estate agent may be focused on collecting the most commission in the least amount of time.  A.W. Jenkins’ ground breaking research looked into why consumers continued to use brokers in a transforming real estate environment as a means of buying and selling a home.  Jenkins determined that the only reason why consumers did not use a more efficient “used house dealer” is because they don’t exist (Home, Sweet Home: Real Estate Brokerage in Canada, Vancouver, Canada: The Fraser Institute, 1989).  Jenkins discussed the incentive for consumers to sign commission based broker agreements, even when there are more efficient means of buying and selling a home; including a used house dealer, sell the house on their own, or even pay a flat listing fee.

Anglin & Arnott furthered Jenkins’ line of questioning and came to the conclusion that although a used house dealership (like the used car dealership) may be the most efficient means of buying and selling a home for the consumer, it is not an efficient business model for residential real estate professionals (Residential real estate brokerage as a principal-agent problem; The Journal of Real Estate Finance and Economics; 1991, vol 4, no 2, pp 99–125).  The cost of maintaining a used house inventory for the dealer is prohibitive because home resale usually takes longer than reselling an automobile.  Another reason for non-existent used house dealers is government regulation: The sale of residential real estate by individuals other than the owner is highly regulated and sets standards for real estate brokerage.

Furthermore, they hypothesize that there may be broker “collusion” in maintaining existing business models:

…Collusion, we argued, is particularly easy to sustain and enforce in the residential real estate market because transactions require cooperation between the buying and selling broker…

As the transforming real estate industry continues its journey, the notion of efficiency has taken a substantial turn in favor of the real estate agent.  The advent of buyer agency and dual agency has allowed agents to leverage their name and reputation to other agents through a “team.”  Much like the medical office business model of luring patients through someone’s name and reputation, only to see the lower techs; the real estate team has become a popular business mode because an agent can leverage their time by having other agents do their work.  To further the confusion, in some cases there are teams within teams. But to understand the structure of the real estate team concept, think of a Russian nesting doll.  The team is a smaller nesting doll which is embedded in the larger nesting doll (the broker); and the team members are even smaller nesting dolls embedded within the team nesting doll.  To be fair, there are various team models in use today; some are better than others with respect to transparency.  The transforming real estate industry has moved towards real estate teams, which essentially operate as a brokerage within a brokerage.

Real estate team advertising and disclosure have become the focus of regulation in recent years, but has not entirely thwarted unscrupulous advertising that intends to mislead the consumer.  Furthermore, agents who are independent contractors and sub-contractors of brokers and other agents, can not only muddy the waters of agency, but can further distance the agent’s incentive and duty to their client.

In his article about the dual agency controversy (From subagency to non-agency: a history; inman.com; Feb 27, 2012), Matt Carter reminded us about a 1993 treatise by the former National Association of Realtors general counsel William North titled “Agency, Facilitation and the Realtor.”  The essay was written at a time when transforming real estate was about acknowledging buyer agency.  Agency relationships between Realtors and their clients were under scrutiny.  North was questioning whom agents really represent and if agents actually knew their role.  To make it easier for agents to know to whom they have a duty, North made an argument for eliminating the independent contractor status that prevails throughout the industry.  He stated:

An approach more difficult of acceptance by NAR membership would be the abandonment of the independent contractor status…The prevailing independent contractor relationship between broker and salesperson encourages “quantity” over “quality…It is clear from the letters which have been received by Realtor News on the Agency issue that far too many Realtors and Realtor Associations simply have no concept of what an agent is, does or cannot do or that their status as an “independent contractor” vis-à-vis their broker has nothing to do with their obligations, as an agent, to the seller or the buyer.  It only compounds the public confusion as to the status of a Realtor when Realtors themselves do not understand who and what they are.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.