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July 15, 2016

About friendly advice

Home buyers and sellers often seek advice from others. Even when they’re working with a professional who provides expert guidance. You might think it’s good to get validation from others on your real estate decisions. However, a Vancouver consumer study suggests that following friendly advice may be a bad idea (Friends give bad advice; The Sun, 4/14/2011, p29).

Research of consumer psychology and behavior have time and again found that consumers want to be correct in their choices. They want to feel good about their decisions. They want to believe that their purchases are the best, and the professionals they choose are tops in their field. Consumers are known to behave irrationally to prevent the cognitive dissonance that occurs when they are confronted with conflicting thoughts about their choices. And that means they often make poor decisions.

Mintel’s American Lifestyles 2015 report indicated that 69% of those surveyed sought out product and service reviews before purchasing. While 57% of those surveyed sought out recommendations from social media. Given the finding, it is suggested that there may be emphasis for communal thinking over “individual preference.” However, about 38% of those surveyed considered independent review websites as “trustworthy;” while 34% found them useful. But, 31% found social media contacts trustworthy; while 25% found them useful (Seven in 10 Americans seek out opinions before making purchases; mintel.com; 6/3/2015).

Seeking out friendly advice is part of herding behavior, which has been found to be a part of our everyday decision making process. A groundbreaking study of home owners’ decisions to walk away from their mortgages (strategic default) during the great recession revealed how people seek and give advice (Luchtenberg & Seiler (2013). The effect of exogenous information signal strength on herding. Review of Behavioral Finance, 5(2),153-174). The study concluded that people tend to seek advice when they feel that their choice is not in agreement with others. While advice was readily given by those who felt their choices were believed to be the consensus.

Buying and selling a home may not always feel as if it is a rational process. And you may think it logical to seek friendly advice. However, indiscriminately following advice may not be the best practice because all real estate transactions are different. Each transaction presents a different set of variables such as personalities, market conditions, contract terms, etc.

Given the research, more often than not, you are doomed to follow the advice of a friend or family member – even when confronted with the evidence that the advice is ill advised. You can infer from the Vancouver study mentioned earlier that friends and family feel “pressured” to give you advice on your real estate transaction because they want to be helpful. Furthermore, herding research suggests that you probably give emphasis to advice from friends and family because following their advice will likely make you feel you are “doing the right thing,” as well as increase your acceptance by them.

Regardless of your rationale, your real estate decisions are most likely based in psycho-emotional needs and/or fears (such as status, acceptance, and avoidance of failure). Breaking away from the herd is difficult. Improve your decisions and make your transaction successful by pursuing balanced information and becoming aware of your motivations.

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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.

July 7, 2016September 20, 2018

Home buyer life hacks

“Life hacks” have been trending everywhere the last few years, from the internet to social media. Life hacks are typically actions or “wisdoms” to make life easier. However, home buyer life hacks are not easy to find.

The home buying experience can be time consuming and stressful. Over time, the home buyer’s responsibilities change. In fact, the home buying experience has drastically changed in the last decade. Consider that mortgage programs and Realtor® contracts changed and continue to evolve. Which includes the TILA-RESPA Integrated Disclosure (TRID) rule that went into effect last fall, which changed how a transaction settles. Here are a five home buyer life hacks to make the experience straightforward and more enjoyable.

The first home buyer life hack is to learn about the home buying process. Certainly a must for first time home buyers. However, even experienced home buyers may find themselves in strange waters if they’ve not bought or sold a home in the last couple of years. Becoming acquainted with home buying process can help you anticipate and prevent most surprises that can upset the flow of the transaction.

Home buyer life hack number 2 – make a budget. Creating a budget may take the romance out of the buying process, but will help you with your home search and contract decisions down the road. Consult a professional if necessary. In making your budget, consider your income, debts and other financial obligations, as well as your life style. Make a housing budget that includes mortgage, property taxes, HOA or condo fees (if any), homeowner’s insurance, utilities and maintenance. In creating your budget, also consider future changes to income and home related cost increases.

Home buyer life hack number 3 – know what to expect from the housing market. Knowing whether the housing market is benefiting the seller or buyer can help decide on a winning home buying strategy. Understanding that a low inventory market may necessitate you and your agent to do a little more leg work to find homes for sale. Know the current housing trends for the neighborhoods you are perusing, so you can prepare for competition and multiple offer scenarios.

Home buyer life hack number 4 – hire a professional. The process isn’t rocket science, however, you can easily find yourself in over your head if you’re not experienced in buying a home in today’s market. Although some home buyers believe they can get a better deal by not using an agent to help them buy a home, it could end up costing more because of poor negotiating in price, home inspection, and other add-ons. Hiring a buyer agent can also free up time that is necessary to conduct the process. Experts know the market such that they can help you determine the best offer price. They can also package your offer in a way that facilitates the transaction.

Most home buyers will follow home buyer life hacks 1 through 4. However, they will take for granted that everything they are told is true. Which brings us to home buyer life hack number 5 – do your due diligence. As you can imagine, not everything you are told is true or depicted accurately. “Trust and verify” can help you identify and reduce hidden and obscure risks by verifying the truth. Conduct your due diligence throughout the home buying process; from the veracity of a seller’s statements about their home to vetting the professionals you hire.

Original published at https://dankrell.com/blog/2016/07/07/5-home-buyer-life-hacks/

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June 24, 2016October 20, 2020

Vacation home buying

Buying a vacation home

A trip to the beach or mountains may have you wondering about owning your own vacation home. And as it happened you’re not alone! An April 1^st 2015 National Association of Realtors® press release estimated that vacation home sales bounced back to peak levels in 2014. There was a massive 57.4% increase over 2013 sales! In contrast, during the same period there was an estimated 7.4% decrease in investment home sales. And an estimated 12.8% decrease in owner occupied home sales (realtor.org).

Although your motivations may be personal, the NAR’s 2015 Investment and Vacation Home Buyers Survey revealed that there are various reasons to buy a vacation home. Not a surprise, a majority of those surveyed (33% of respondents) indicated the primary reason they bought was to use for vacations or family retreats. However, 19% of respondents indicated their purchase was for a future retirement home, while 11% or respondents bought for the home to be used as a rental property.

Do the research

You’ll find vacation homes in different styles, sizes and prices. However, your favorite destination may dictate the price range and style. You may realize that although you are able to afford the week’s rental at your favorite retreat, you can’t afford to buy a vacation home there. However, if you broaden the search area, you may find suitable and lower priced vacation home nearby.

Benefits

You may have heard others talk about the benefits of their vacation home, such as being able to visit any time they desire without having to worry about reservations, or restrictive check-in and check-out times. They usually don’t have to worry about having too many guests either, as they can invite whomever they wish to keep them company. And they don’t have to worry about special accommodations – it’s their home after all!

Disadvantages

There are benefits of owning your own vacation to be sure. However, it’s probable that you may not hear vacation home owners talk about the downside. Jeff Brown, writing for US News and World Report, stated: “A second home can produce a wonderful family tradition or turn into a stress-inducing money pit.” (The Pros and Cons of Investing in a Vacation Home; usnews.com; February 10, 2016). Brown quoted Alison Bernstein, founder of Suburban Jungle, saying: “It is less expensive to stay in hotels in various destinations than it is to upkeep a home, including the hidden expenses of caretaking, overall operations of a home and property taxes…However, for those that are able to enjoy it, it is definitely worth it.”

Brown points out the increasing costs of ownership. Property taxes, insurance, and possibly a condo or HOA fee can increase. Additionally, the vacation home requires regular maintenance just like your primary residence. Repairs may compel you to make extra trips to work on the home rather than being a relaxing holiday.

Brown cautions that a vacation home may not be the best vehicle for investment because of the volatility of resort property. Additionally, if you need the money, it’s more difficult to tap the equity in a second home. Applying the tax advantages can be tricky too, so consulting with a tax professional before buying a vacation home would be wise. Self-managing the property can become aggravating, as it can be difficult to find tenants during the off season; however, hiring a management company can be pricey.

By Dan Krell
Copyright © 2016

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May 13, 2016November 23, 2021

Real estate agent robots

Many erroneously describe Gordon Moore’s prediction as the doubling of computing power every two years. “Moore’s Law” is more accurately described as the doubling of transistors on a chip every two years. The point is that computer power is on steep path of improvements; and the prediction has been accurate since Moore’s 1965 paper “Cramming more components onto integrated circuits” (Electronics; April 19, 1965). What does Moore’s Law have to do with real estate? Everything. Many industries have benefited as computer processing power increased – including real estate. Will we see real estate agent robots in the future?

It is often said that a smart phone has thousands more computing power than the Apollo guidance computer. Consider how far computing power has increased over the last fifty years; common computer processors today exceed 1 billion transistors per chip with average clock speeds over 2.5 GHz (the Mac Plus I had in graduate school had an 8MHz processor with only 68,000 transistors!). The ever growing processor power has allowed major developments in artificial intelligence (AI) and robotic applications we are witnessing today. And the promise of quantum computing is expected to make our current computers seem like abacuses.

A cutting edge 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, discussed the effects of advancements computerization and robotics on employment and the labor market (The Future of Employment: How susceptible are jobs to computerisation? Oxford Martin School – University of Oxford; September 2013). The authors concluded that about 47% of the US workforce is at risk of being “automated soon” (which is in the next ten to twenty years). Workers expected to be affected include, “…transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations…” The service industry, including real estate, was singled out as being affected by AI and robotics.

Included among the top occupations most at risk included: real estate broker, real estate agent, property manager, and real estate appraiser. The increasing reliance on automated property valuations by lenders, real estate agents, and consumers is a testament to the advancement of AI in the industry. Back in April, Inman (a leading real estate information publisher) devised an experiment to see if a computer algorithm would best a real estate broker in choosing homes for potential home buyer. The results announced May 10^th revealed that the computer program did a better job than the real estate agent (Broker vs. bot: And the winner is…; inman.com; May 10, 2016). Of course, there were limitations to Inman’s test; but still a notable result nonetheless demonstrating how AI is affecting the real estate industry. Robotics is making significant advances too.

Recent developments have made self-driving cars real, along with Honda’s Asimo; and even artificial companions. You can now purchase your own service robot, if you can afford it. Just like AI, robots may also take over real estate agent tasks in the near future. Imagine walking into an open house and being greeting by a friendly and helpful robot! We often talk of how quickly the internet has developed and its impact on the real estate industry. And it’s partly due to rapidly increasing computer processing power and Moore’s Law. Imagine how AI and robotics will change home buying and selling in ten or twenty years. And once quantum computing becomes commonplace, you may even experience a real virtual tour via a holodeck.

Original at https://dankrell.com/blog/2016/05/13/real-estate-agent-robots/

April 29, 2016September 23, 2019

When transfer tax becomes controversial

The legislative process encourages discourse for proposed legislation. The result is a bill that is passed or defeated. Regardless, proposed housing market and real estate legislation is not typically exciting; and in fact the minutia of the bill can be downright boring and/or confusing. However, there are occasions when proposed legislation has the potential to affect home owners and buyers such that it can create a brouhaha.

First, let’s review a few bills passed by the Maryland General Assembly: The first has to do with agency. Currently, “licensees” are required to provide the Maryland Real Estate Commission’s Understanding Whom Real Estate Agents Represent at the time of first face to face meeting and is a notice to the consumer. The disclosure explains seller’s agents, agents who represent the buyer, and dual agents. For many home buyers, the first face to face meeting of an agent is at an open house, and are supposed to be given the disclosure by the agent sitting at the open house regardless if the buyer has an agent or not. The new law is to simplify the disclosure, eliminating redundant notices and allowing agents at open houses to post who they represent instead of the asking every visitor to sign the disclosure.

Another change is how agents recommend service providers. The current requirement is for agents to check the licensing status of all recommended service providers, ensuring that the provider is currently licensed in Maryland. The new law will only require agents to annually check home improvement licenses of recommended contractors.

The General Assembly also passed legislation that will require home sellers throughout the state to disclose deferred water and sewer charges. Additionally, legislation was passed that adds requirements to the state brokerage licensing exemption for attorneys.

Still with me? Good. Local residents should be aware of the Montgomery County Council’s attempt to fast track a bill to increase the county’s recordation tax on real estate transactions. On April 14^th, Expedited Bill 15-16, Recordation Tax – Rates – Allocations – Amendments was introduced by Council President Nancy Floreen. Recordation tax is collected when a home is sold, and when a home owner refinances a mortgage. If passed, it will become effective July 1^st 2016 (which is about 2 months from now!).

The Greater Capital Area Association of Realtors® issued an April 18^th press release opposing the bill, stating that it unfairly targets home buyers and home owners by increasing a tax that is already among the highest in the state.

In an April 12^th memorandum to Councilmembers (page 7 of pdf) Councilmember Floreen stated: “While nobody likes the idea of increasing taxes of any kind, our needs are great, and this tax is less likely to affect those Montgomery County residents who are struggling most. On the up side, it will generate millions of dollars to support our desperate need for new schools and educational facility improvements. What’s more, a portion of the recordation tax is earmarked for affordable housing.”

Although aspirations for certain projects may be well intentioned, Councilmember Floreen should consider that further burdening home buyers in an already high cost area for real estate could impact homeownership and make “affordable housing” less affordable. Furthermore, the average Montgomery County home owner refinancing their mortgage may not be struggling, but they are trying to get by the best they can in a high cost of living area.

By Dan Krell
Copyright © 2016

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