real estate Archives - Page 17 of 97 - Real Estate News and Commentary

April 2, 2019June 3, 2019

Negotiating agent commissions

It’s no secret that residential real estate agent commissions are decreasing. Market forces has created new broker models that has put downward pressure on commissions. Many agents embrace consumers negotiating agent commissions.

If market forces are working in negotiating agent commissions, and commissions are decreasing, you might wonder about a recent class-action law suite.

If successful, an anti-trust class-action law suit filed March 6^th could potentially change the landscape of the residential real estate industry. The law suit alleges that the National Association of Realtors and a number of major real estate brokerage brands engaged in “anticompetitive practices.”

According to the law firm Hagens Berman (hbsslaw.com), “the lawsuit alleges NAR and the Big Four have enacted a set of anticompetitive policies intended to prevent competition among real estate brokers, as well as stopping buyers and sellers form negotiating commissions, including: Only allowing listing brokers to list a property on an MLS if the listing broker makes a unilateral, non-negotiable offer of compensation on the MLS to buyer brokers. Prohibiting buyers and sellers from negotiating buyer broker commission. Prohibiting brokers from disclosing commissions offered on MLS. Allowing brokers to take both buyer and seller commissions, if the buyer is not represented by a broker. This anticompetitive activity has been devised at the national level and enforced at the local levels.”

I am not an attorney, but I have been listing and selling homes for over seventeen years. These thoughts are my own. I am not speaking for anyone except myself. I am offering insight from my professional experience.

On the face of it the lawsuit assertions are false. First, the allegations make it sound as if home sellers have no choice in how they sell their home except to use a full-service exclusive real estate broker. As I wrote just last month, home sellers have many options in selling a home. Besides selling “By Owner,” there are multiple broker options as well, including (but not limited to) MLS placement services, limited services and à la carte.

These assertions also make it sound as if a home seller can only get an “exclusive right to sell” listing agreement with a real estate broker. But again, the home seller has options in the type of listing agreement and broker agency type. Because my space is limited and the issue of brokerage representation is technical, I won’t expound on the types of listing agreements and home seller representation. However, each type of listing agreement has specific benefits and disadvantages.

Furthermore, commissions have always been negotiable. And market forces have been in favor of consumers negotiating agent commissions. The lawsuit’s assertions about real estate commissions are misconceived and cliché. The matter of real estate commissions can be complex and depends on a number of factors, which can include (but is not limited to) market conditions, type of representation, types of services provided, among other things. Additionally, home sellers are not the only party to a transaction that negotiates commission. Home buyers who are represented by a broker negotiate the buyer agent commission as well.

The internet has created an empowered savvy consumer. Like other industries, public access to information (internet) has been a major factor in reducing real estate broker fees and commissions. Both listing broker and buyer agent commissions have decreased. The internet has allowed home buyers to find home listings on their own regardless of advertised buyer agent compensation, including non-MLS listings such as home builder and FSBO listings.

Although the NAR has yet to issue a formal statement, NAR vice president Mantill Williams was quoted as saying on Fox Business’ Bulls and Bears program, “We think this lawsuit is baseless and it has no merit. The state and federal courts have considered challenges to the MLS and they’ve concluded the Multiple Listing Service actually benefits consumers.”

Original published at https://dankrell.com/blog/2019/04/02/negotiating-agent-commissions/

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March 21, 2019November 23, 2021

Creating home staging vision

Although home staging has become entrenched in the home sale process, it doesn’t have to be a pricey way to prepare your home sale. Not only has it become part of the home seller experience, the home staging vision is now expected by buyers and their agents when they visit homes.

The spring home sale season is the perfect time for the National Association of Realtors to roll out the results of their 2019 Profile of Home Staging survey (nar.realtor). In a March 14^th press release, NAR President John Smaby summed up this year’s profile by stating, “Realtors understand the importance of making a residential property as welcoming and appealing as possible to potential buyers. While every Realtor doesn’t use staging in every situation, the potential value it brings is clear to both homebuyers and sellers.”

Staging may affect a home’s time on market, and it’s likely due to visual cues. Meaning that home staging vision helps the home buyer picture themselves living in the home. More than half of the agents who responded to the survey indicated that home staging reduces time on market. Forty percent of buyer agents said that home staging effects most buyers’ perceptions of a home. Eighty-three percent of buyer agents believe that home staging vision makes it easier to visualize living in the home.

It’s not surprising that agents agree that the most staging attention goes to the living room, kitchen, master bedroom, and the dining room. It’s not that these rooms have special significance, but rather it’s because it’s where people spend most of their time in the home.

The NAR survey also found that real estate TV shows has impacted home buyers’ views and expectations. Thirty-nine percent of buyers indicated that they experienced a more difficult home buying process than what they expected. Twenty percent of buyers reported being disappointed that homes they visited didn’t look like the ones portrayed on TV. While ten percent believe that homes should look staged as they are depicted in TV shows.

Not all agents stage the homes they list for sale. Only twenty-eight percent of listing agents said they staged all sellers’ homes prior to listing them for sale. Compared to the thirteen percent of agents who confessed that they only stage homes that they deem difficult to sell.

Does home staging affect sale price? It was noted that all agents surveyed indicated that home staging affected their home sale positively. Twenty-two percent of the agents reported an increase of up to five percent in buyers’ offers, while seventeen percent reported offer increases up to ten percent. Only two percent of the agents responded that it increased offers up to twenty percent.

But the idea of staging your home to get top dollar may just be traditional wisdom, as evidenced by NAR’s survey. One of the few studies on staging revealed that indeed, staging does not have a significant impact on sale price. Lane, Seiler & Seiler’s 2015 study (The Impact of Staging Conditions on Residential Real Estate Demand. Journal of Housing Research, 24,1. 21-35) concluded that although staging affects the home buying process and the buyer’s opinion and perception of livability, it’s not enough to result in a higher sales price. The authors stated, “These results stand in stark contrast to the conscious (stated) opinion of both buyers and real estate agents that staging conditions significantly impact willingness to pay for a home. As such, the findings are new and useful to a large group of stakeholders (sellers and agents).”

Original published at https://dankrell.com/blog/2019/03/21/creating-home-staging-vision/

By Dan Krell
Copyright © 2019.

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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.

March 14, 2019December 13, 2022

Curb appeal science

Curb appeal is one of those “intuitive” topics that only gets media attention in the spring and maybe the fall. If you search the internet, you’ll find millions of websites that talk about curb appeal. Because the concept is based on accepted lore, my guess is that most of those sites regurgitate the same ideas. Everyone has some understanding of curb appeal. And if asked, they will give you their opinion on improving it to get a higher home sale price. Everyone agrees that curb appeal can increase home buyer traffic. And most agree that curb appeal can increase the home’s sale price. But is there a curb appeal science?

I often present empirical studies to help you understand if widely accepted real estate traditions and principles are accurate. Unfortunately, curb appeal science is one of those subjects that doesn’t get much academic attention. Notwithstanding, there are two very compelling studies about curb appeal science.

One of the first studies to empirically confirm the connection between home sale price and curb appeal was published in 2013. 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) examined how a home buyer’s preferences of a home’s exterior influenced the sale price. Not a surprise, they concluded that there is a connection between a home’s exterior and the sale price. They also quantified the relationship, saying that even small improvements to curb appeal can increase the value by as much as eight percent.

It’s not just the yard and exterior home maintenance. Chen’s study also discovered that architectural elements also determine the home’s sale price. They discovered that the demand for higher cost “modern” homes is relative to what’s contemporary. Meaning that today’s highly desirable new homes and floor plans could be less desirable and sell for less in the future.

A more recent study went further and developed a measurement of a building’s curb appeal. Freybote, Simon and Beitelspacher (Understanding the Contribution of Curb Appeal to Retail Real Estate Values; Journal of Property Research. 2016, Vol 33, No 2, p147–161) found that there are three dimensions of curb appeal that can be measured: atmosphere, architectural features and the authenticity of a building.

A home’s atmosphere describes the general landscape maintenance as well as emotional aspects, such as how relaxing, inviting, and vibrant the home feels. Architectural aspects rate the visual aesthetics of the home, highlighting modern design and interesting features. A home’s authenticity relates to its charm and how “genuine” it feels. In other words, can the home buyer picture themselves living there? The study concluded that curb appeal and sale price is not only connected, but can also be accurately measured. The two dimensions that affected sale price the most were atmosphere and architecture. The authors also suggested that the atmosphere dimension has a social component (which may be associated pride of ownership).

Although authenticity was not found to be as influential on sale price, it is notable. A home’s authenticity (as described in this study) is probably one of the least thought of aspects when preparing a home for sale. If the home staging, including landscaping and exterior elements, is over-the-top or does not portray the home accurately, a home buyer may be less interested in making an offer and negatively affect the home sale price.

Original published at https://dankrell.com/blog/2019/03/14/curb-appeal-science/

By Dan Krell
Copyright © 2019.

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March 10, 2019November 23, 2021

Housing market mini-cycles

In a statement last year, NAR chief economist Lawrence Yun discussed the housing market’s recovery since the Great Recession (Realtors Chief Economist Reflects on Past Recession, What’s Ahead for Housing; nar.realtor; August 28, 2018). Citing increasing homeownership rates and addressing the recent home sale slowdown, Dr. Yun believes that concerns about a significant housing slump are unsubstantiated. Instead, we may be going through housing market mini-cycles.

Dr. Yun is not the only one pointing to affordability (home prices and mortgage rates) and lack of home sale inventory as causes of market disruptions. But his statement is almost trite: “…even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases…”

Housing market mini-cycles and the economy

The housing market, like the overall economy, goes through cycles of boom and bust. It’s been about eleven years since the last recession, and many are saying we’re overdue for another one. But if the economic cycles, as described in 1876 by economist Henry George and modernized by Glenn R. Mueller, accurately include recovery, expansion, hypersupply, and recession, there is no clear phase to describe recent housing activity. Instead, what we are experiencing is housing market mini-cycles.

Most understand the concept of the broad economic boom and bust cycle. But most are unaware of the mini-cycle that manifests as repeat periods of short-term growth and slowdown. Recessions typically have broad effects on the economy, where as mini-cycles are are fast cycling and specific to economic sector. So, a complete housing market mini-cycle can last several months or longer and may not spill over to other sectors.

Since 2013, the housing market has undergone at least three mini-cycles of growth. These cycles peaked with record sales volumes, only to be set back by months of sluggish home sales. The causes of the housing market mini-cycles are debatable and, like a recession, clear in hindsight. Of course, Dr. Yun and other industry experts are likely to be correct saying that home prices (affordability) and inventory are to blame. However, there may be other reasons worth exploring as well.

Micro-economic factors are playing a large role in the housing market mini-cycle. Take for example the increase in employee telecommuting. There is an abundant research pointing to how telecommuting has affected the commercial real estate market. These studies point to increased office space vacancies due telecommuting. Companies are downsizing offices because of the reduced need for space as employees are working from home. This trend is recognizable in real estate brokerages. Real estate office spaces are shrinking as the industry becomes increasingly “virtual.”

Telecommuting is also impacting home sales. According to Global Workplace Analytics (globalworkplaceanalytics.com) “Regular work-at-home, among the non-self-employed population, has grown by 140% since 2005, nearly 10x faster than the rest of the workforce or the self-employed.” Currently, there are about 4.3 million employees that work from home at least half the time. As businesses are increasingly hiring a telecommuting workforce, workers opt to stay in their current residence rather than relocate near their new employer.

Does housing market mini-cycles lead to recession? Maybe the the mini-cycle is a brief market correction that helps avoid the broader effects of recession. Take for instance the three housing market mini-cycles that recently boomed in 2013, 2016, and 2017-2018. During these mini-cycles, home prices soared and home sales broke recent records (since Great Recession).

Current economic indicators (at the time of this writing in March 2019) point to a positive home sale season. The Bureau of Labor Statistics (BLS.gov) most recent unemployment statement was 4.0 percent (which included government shutdown stats). The Consumer Price Index remains stable (the CPI-U was last reported unchanged). Real average hourly earnings was reported to increase 0.2 percent from December to January. And after a three-month decline, the Conference Board (conference-board.org) reported a rebound in the Consumer Confidence Index. Given the winter housing slump, real estate may be on everyone’s mind again in this spring.

Original published at https://dankrell.com/blog/2019/03/10/housing-market-mini-cycles/

By Dan Krell
Copyright © 2019.

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March 4, 2019December 13, 2022

Climate change and your housing budget

Saving the planet and acting environmentally ethical is good. But there is a truth that human behavior is unpredictable. Even in the face of the speculative disastrous effects of climate change, consumer demand for housing in effected areas is resilient. Rapti Gupta pointed this out when raising the alarm in his RealtyToday article (The Looming Global Warming Catastrophe and its Effect on Real Estate; realtytoday.com; November 11, 2013).

If consumers won’t embrace climate change, government will. Making your home “green” seems to be going to another level these days. Home owners have responded by voluntarily upgrading and conserving to help according to their belief. And although it’s not the first time, there is a nationwide push for local climate change legislation that is likely to impact your housing budget.

It’s been ten years, but you probably forgot about the American Clean Energy and Security Act of 2009. The bill, also referred to as the “cap and trade” bill, not only focused on commercial properties but residential properties as well. The bill would have established National Energy Efficiency Building Codes for commercial and residential buildings. Additionally, it intended to retrofit all existing buildings to meet new standards. Enforcement would have been through regular government inspections.

Climate change, CCA’s and your energy bill

Since the bill (and others like it) was not enacted, local communities have picked up the ball to make their communities “greener” through Community Choice Aggregation programs. Although CCA’s have been implemented in some states since the 1990’s, the idea is gaining steam in others. Montgomery County Executive Marc Elrich recently testified in support of CCA’s and the legislation (HB0730/SB0660) that is making its way through the Maryland General Assembly.

What is Community Choice Aggregation? According to the EPA (epa.gov), “Community choice aggregation (CCA), also known as municipal aggregation, are programs that allow local governments to procure power on behalf of their residents, businesses, and municipal accounts from an alternative supplier while still receiving transmission and distribution service from their existing utility provider. CCAs are an attractive option for communities that want more local control over their electricity sources, more green power than is offered by the default utility, and/or lower electricity prices. By aggregating demand, communities gain leverage to negotiate better rates with competitive suppliers and choose greener power sources.”

However, Severin Borenstein’s blog post for the Energy Institute at Haas (haas.berkeley.edu) points out the pros and cons of CCA’s (Is “Community Choice” Electric Supply a Solution or a Problem?). Borenstein points out the local utility still does all the work of supplying and metering customers, and bills customers for their services.

However, the CCA is contracting to purchase electricity on your behalf (supposedly from renewable sources), promising a better price. But Borenstein points out that policy makers learned that “electricity is not always like other markets,” pricing and fees can be complicated. He also pointed out that because of regulatory standards, the CCA buying of energy contracts from renewable sources doesn’t mean that the grid’s “total” green energy increases or that it will decrease greenhouse gases. He states, “green energy claims deserve close scrutiny.”

Borenstein concludes by saying that “Regulated investor-owned utilities are flawed organizations that operate under a distorted set of incentives. But local governments are also flawed organizations subject to their own set of distortions, a fact that is often less appreciated by the local government leaders who are promoting the CCA. If your community is considering a CCA, you need to think about which organizational structure is most likely to have the sophistication and the incentives to serve you best.”

Original published at https://dankrell.com/blog/2019/03/04/climate-change-housing-budget/

By Dan Krell
Copyright © 2019.

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