Real Estate News and Commentary

June 16, 2017July 14, 2019

Homeownership crisis?

The housing market made significant strides last year with regard to home sales and home prices. However, even with housing’s good news, the homeownership rate continues to be at generational lows. Economists and real estate professionals are stumped. Is there a homeownership crisis?

The homeownership rate for the first quarter of 2017, reported by the U.S. Census Bureau (census.gov), was 63.6 percent. This is a slight improvement from homeownership rate recorded in 2016. However, in their analysis, the Census Bureau stated that when the rate is adjusted for “seasonal variation,” there was no statistical difference from the 63.5 percent rate recorded in the last quarter of 2016.

The homeownership rate peaked at 69.2 percent in 2005, but has steadily declined since the Great Recession. Industry experts have been flummoxed as to why there have not been more home buyers taking advantage of historically low interest rates in an upward economy. (Freddie Mac reported last week that the national average interest rate for a 30 year fixed rate mortgage was 3.94 percent; freddiemac.com). Even mortgage lending has become looser, as some mortgage companies have rolled out low and no-down payment programs in recent months.

A homeownership crisis in the making, why is there lack of interest in homeownership? A recent study co-sponsored by the Fisher Center for Real Estate and Urban Economics, UC Berkley and the Rosen consulting Group (Hurdles to Homeownership: Understanding the Barriers; June 2017) asserted to have the answer to this question. According to a NAR press release (realtor.org), the study was announced this month in honor of National Homeownership Month, and presented at the National Association of Realtors Sustainable Homeownership Conference.

The authors discussed regulatory issues that has hindered housing and mortgage lending. They also identified issues affecting would-be home buyers, which include: student debt; availability of mortgages; housing affordability; low home sale inventory; and “post-foreclosure stress disorder.”

You may already have heard much about regulatory issues, consumer debt, mortgages, affordability, and low housing inventory. But, what is “post-foreclosure stress disorder?” The Rosen Consulting Group coined the phrase to give a name to the concept of perceived home buying risks derived from a financial crisis.

Even though a number of consumer surveys continue to indicate a strong positive sentiment towards homeownership, the authors point to post-foreclosure stress disorder as a major influence on home buying decisions. They believe that many individuals have been directly and indirectly affected by the Great Recession, and therefore have changed their behaviors based on perceived financial risks. And the greater the financial risk, the greater the caution exercised. They claim this is confirmed by a Federal Reserve survey where 80 percent of respondents indicated they would like to own a home someday, but only one in six who were financially able to purchase a home felt that renting was the best choice for now. The authors stated that although the trauma of the Great Recession will fade over time, they assert the need to rebuild confidence in homeownership benefits.

Post-foreclosure stress disorder may account for a decline in the homeownership rate, but this is not a homeownership crisis. It is shift in values and a major shift in lifestyles. Surveys have indicated that millennials are expected to be the largest group of homebuyers, but many millennials don’t want to be anchored by owning a home. They want to be able to take advantage of global opportunities without the burden of having to sell a home. There is a shift away from the old standard of being house-centric to mobility.

By Dan Krell
Copyright© 2017

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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.

June 9, 2017September 10, 2018

Home inspectors make mistakes too

The home inspection has become a standard part of the home buying process. Even in very competitive buyer situations, you can still work in an inspection without hurting the chances at getting the home of your dreams. And although you should never forgo the inspection, you should know that the home inspection offers an opinion. However, home inspectors are not always accurate or relevant, they make mistakes too.

Nick Gromicko and Kenton Shepard, of the International Association of Certified Home Inspectors, shared their thoughts on the limitations of the home inspection (The Limitations of a Home Inspection; nachi.org). First, home inspectors are “generalists.” They may not necessarily be an expert in all aspects of home building and/or systems. However, they are trained to spot potential problems and may recommend you consult with an expert.

They pointed out that home inspections are limited to what the inspector can see. Anything that is not accessible to the inspector cannot be seen and inspected. This includes anything behind walls, under floor coverings, or blocked by furniture or other items.

Gromicko and Shepard stated:

“Safety can be a matter of perception. Some conditions, such as exposed electrical wiring, are obviously unsafe. Other conditions, such as the presence of mold, aren’t as clear-cut.”

They further stated:

“Every home has mold and mold colonies can grow very quickly, given the right conditions. Mold can be a safety concern, but it often isn’t. The dangers represented by mold are a controversial subject.”

They conceded that “other potential safety issues that fall into the same category.” Hazardous materials and environmental issues require specialists, and most often require samples for lab analysis.

Daniel Goldstein wrote that some home inspectors go too far (10 things a home inspector won’t tell you; marketwatch.com; February 23, 2016). Some inspectors dwell too much on “superficial” items such as chipped paint and surface mold. And they often provide long lists of items that may or may not be a problem without putting them into context. He stated:

“So what constitutes going too far? A less helpful inspector might dwell on things like surface mold, chipped paint or other superficial problems, or present buyers with a long litany of issues, with no context about their relative importance and no estimate of the cost of fixing them.”

Understand your home inspection has limitations, so moderate your expectations. A good strategy is to have a conversation with your inspector about what you could expect. Every home is different for many reasons, but often present similar issues. Your inspector should be able to explain what you might expect due to the home’s age and level of maintenance. Some inspectors may also be able to point out future potential issues based on the inspection.

Additionally, when it comes to hazardous materials, environmental issues, and other controversial subjects, you must go beyond the hysteria and educate yourself. Getting the facts about such topics, which many home owners encounter, can help you understand the risks and how to reduce or eliminate them. If issues are identified in the inspection, get an expert’s opinion. An expert can provide further information, advice and context.

Choose an experienced home inspector with references. Check to ensure their license is active. Home inspectors in Maryland are licensed by the Department of Labor, Licensing and Regulation (dllr.state.md.us/license/reahi). The stated requirements to become a licensed home inspector include the completion of an approved 72-hour home inspector training course and pass the National Home Inspector Examination. Although Maryland home inspectors are licensed, look for an inspector with additional credentials. Many inspectors are also certified by professional organizations such as the International Association of Certified Home Inspectors (NACHI.org) or the American Society of Home Inspectors (homeinspector.org).

Original published at https://dankrell.com/blog/2017/06/09/home-inspectors-make-mistakes/

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June 2, 2017June 2, 2017

Real Estate Expert

When I began my real estate career, every budding agent was taught that we should farm neighborhoods to become the local expert. Agents would (and many still do) farm neighborhoods by spending a small fortune on mailings and other promotional marketing about themselves just to tell you how smart they are about your neighborhood. The notion that only one agent is “the expert” on selling homes in your neighborhood has become antiquated. The demise of this long standing rite is approaching as consumers become increasingly savvy. Enter “The Real Estate Expert.”

Before the MLS, real estate was a local business, where real estate brokers set up their offices in neighborhoods and became the “local experts.” The neighborhood broker guided home sales and prices because they were the expert. Home buyers and sellers went directly to these agents if they wanted to buy or sell a home.

However, the advent of the MLS opened up the marketplace and created “market experts.” Not having prior knowledge about a neighborhood was no longer a problem for real estate agents. The MLS provided agents the data and home information to become the local housing trends expert. The MLS essentially allowed agents to sell more homes in the broader regional area.

The internet changed all that, of course, by providing data and home information to anyone connected. Everyone is a neighborhood expert thanks to the internet! However, there is downside to having an unlimited stream of figures, statistics and trivia without a filter. Home buyers are on information overload. They are inundated with information about a home’s history, as well as advice about buying and selling. Buyers and sellers have so much information, they are overthinking every aspect about the home buying and selling process. They are getting in their own way and potentially sabotaging their own transactions.

The ever-improving technology and the proliferation of information has changed the business of real estate, which has made the “neighborhood real estate expert” a thing of the past. Sure, there are many agents who still market themselves as the neighborhood expert, but does that make them more qualified to sell your home? Agents hyping themselves to know more about your neighborhood can also potentially sabotage your transaction if they make it personal. They may be able to tell you about what makes your neighborhood special, as well as share trivia. But so can your neighbor. Does that make your neighbor qualified to sell your home?

Enter “The Real Estate Expert.” The Real Estate Expert is a professional who follows the housing market and can interpret the data about your neighborhood in a meaningful way. They can compile information to provide you with a detailed and meaningful market analysis to assist you in deciding on a sale price without personal bias. The Real Estate Expert knows how to market your home in the current economic environment. They understand what home buyers want in a home, and they can prepare and present your home to promote it to grab home buyers’ attention.

Real Estate Experts are trending away from marketing themselves, and leaning towards being attentive to their clients. Real Estate Experts also understand the nuances of negotiation, and are current on legislation that can affect their client’s rights and obligations. They also know how to facilitate a transaction, so as to protect their client’s best interest without regard to their commission.

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May 25, 2017

Home buyer multiple offer survival guide

The real estate market is getting increasingly competitive for home buyers. But it’s not true for all homes. Neighborhood homes that have been selling the quickest and for most money are the homes that fill the discerning home buyers’ need for a turn-key home. You can count on these homes attracting many home buyers, as well as multiple offers. These situations can be frustrating, but being prepared can possibly increase your chances of winning the multiple offer scenario. Many home buyers need not come up empty, confused, and frustrated when they encounter multiple offer situations. Here’s a home buyer multiple offer survival guide.

The Home buyer’s survival guide to multiple offers

When confronted with a multiple offer scenario, you must understand the seller is in the driver’s seat. This is a hard pill to swallow for many expecting it to be a buyer’s market. But for the homes that show the best and are priced the best, you should expect competition from other home buyers. Giving up the expectation that you’ll be able to negotiate a contract on your terms will help you in formulating a competitive offer.

Although you may not realize it, your emotions guide much about your home buying decisions. Formulating your offer for a multiple offer situation will be more sound if you stick to the facts. Focusing on the facts will help you stay focused on the larger picture of buying a home. Using data and facts can also help you be more persuasive when you present your offer to the seller.

Home buyer multiple offer survival guide on the housing market

Understanding the local market can be a major plus when putting your offer together. Housing trends can influence home buyer competition and price. However, understanding your limitations can help your home buying strategy too. You may be limited in the amount you are willing to spend, the type of mortgage for which you qualify, your closing date, and a number of other issues that may affect the terms of the contract. Don’t be discouraged if you think your limitations may lessen your offer’s attractiveness when it’s compared to others.

Certainly, don’t get caught up in media reports on real estate. The housing market is a hyper-local phenomenon. Regional markets are different and have different sales trends. Locally, even neighborhoods may differ significantly. Be prepared with local market information, as well as your limits.

Home buyer multiple offer survival guide on financing

The general consensus when competing with multiple offers is to put your best foot forward. Decide on the best price you feel comfortable paying for the home. Cash deals are difficult to compete against. However, you can beat a cash deal if your offer has a higher price and your lender has provided you a very strong approval letter. If you didn’t meet with your lender prior to looking at homes, make an effort to provide your lender with all necessary documents for them to provide you an approval letter that is only subject to underwriting and appraisal (or the equivalent). The stronger the lender letter, the more confidence the seller will have in you to complete the transaction without delays or hiccups.

Haven’t met with a lender yet? Start your own mortgage file with basic items the lender will need from you. Your lender will need recent pay stubs, W-2 statements, bank statements, 401k statement, and any other financial information you think you may need (which may include child support or disability income). Self employed individuals will need whatever documentation they can muster (including tax returns) to support their declared income. Being organized will facilitate the mortgage process.

Home buyer multiple offer survival guide on contingencies

Try to keep your contingencies to a minimum. There may be some contingencies you may be able to avoid, and some may be necessary. You must consider contingencies carefully and soberly, as they offer some protections if you can’t (or don’t want to) move forward with the purchase.

Home buyer multiple offer survival guide on home inspections

Although some agents suggest skipping the home inspection contingency in a multiple offer situation, I do not recommend that. Many homes have deferred maintenance that can lead to costly repairs. Even renovated homes that appear to be in good condition can have major issues which can go unnoticed. Instead of skipping the home inspection, try to have a short inspection period (have the inspection scheduled ahead of time). Some home buyers have an opportunity to conduct a pre-offer home inspection. This allows them to eliminate the contingency from their offer, as well as knowing the general condition of the home.

Home buyer multiple offer survival guide on finding homes

If you’re finding multiple offer situations too intense, try to find homes that have little or no home buyer competition. Ask your agent about finding homes that are not listed in the MLS. Some agents already seek out such homes. Alternatives could be For Sale By Owner, bank owned, auctions, and even farming specific neighborhoods for owners ready to sell. Your agent can also search through expired and withdrawn MLS listings to find homes.

There are a couple of disadvantages to looking for homes not in the MLS. Although you may reducing the home buyer competition, you may encounter competition from real estate agents looking for listings. Additionally, finding a willing seller of home you desire may take some time.

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May 19, 2017November 23, 2021

Consumers changing real estate agent commissions

Consumers have most likely complained about real estate agent commissions since the advent of real estate brokerage. However, before the turn of this century, most did not question the real estate agent commissions they paid because they chalked it up to the cost of selling a home. Times have changed, such that having a conversation about commissions and compensation is a common topic when agents and consumers first meet.

Real estate agent compensation is evolving as fast as the industry. The US Bureau of Labor Statistics (bls.gov) reports the median annual wage for real estate sales agents was $44,090 in May 2016 (The lowest 10 percent earned less than $22,230, and the highest 10 percent earned more than $112,570). The BLS states:

“An agent’s income, therefore, often depends on economic conditions, the agent’s individual motivation, and the types of property available. Income usually increases as agents become better and more experienced at sales. Earnings can be irregular, especially for beginners, and agents sometimes go weeks or months without a sale. “

Before the turn of this century, there was more conformity in real estate agent commissions because most agents were not negotiable in the compensation they charged. However, modern agents have adjusted their business models and are open to negotiate how much they will be paid.

There are also many real estate broker compensation structures from which you can choose. Some brokers offer limited services, and some offer fee-for services, which includes a MLS placement service. Some fee for service brokers offer à la carte services, where you can choose specific services for which you want to pay. Most “full service” agents still charge a percentage, but the percentage can vary from agent to agent. Full service agents can also vary on the extent of the “full” service they provide; however, many will be open to negotiate their commission rate. Regardless of model, get the agent’s services in writing and hold your agent accountable.

The increased market pressure on agent compensation is actually good for the consumer. It doesn’t only lower the cost of the real estate transaction, but it also increases the quality of services. This was the finding of an empirical study by Panle Jia Barwick and Parag A. Pathak (The costs of free entry: an empirical study of real estate agents in Greater Boston; The RAND Journal of Economics; Vol 46, No. 1, Spring 2015, p.103–145). Their study investigated three scenarios that are chipping away at the traditional real estate agent compensation models: lower commissions, commissions based on break-even costs, and improved information about agents’ past performance.

Barwick and Pathak found some interesting outcomes from their research. Besides concluding that there are consequences for fixed real estate agent commissions, they also discovered that the easy entry into the industry (i.e., the ease of getting a real estate license) reduces the quality of service. Furthermore, the increased competition among real estate agents caused by easy entry into the industry is not beneficial to a home selling or time on market. They also concluded that

“…lower commissions reduce transaction costs, which might lead to a more liquid housing market, improved asset allocation, and better housing consumption. Flexible commissions also provide a channel for consumers to choose services tailored to their preferences.”

Their results suggest

“…that a 50% cut in commissions would result in 40% fewer agents, social savings that amount to 23% of industry revenue, and 73% more transactions for the average agent.”

Realtors should embrace the discussion about compensation and real estate agent commissions with their clients. It offers the agent an opportunity to demonstrate their accountability. It also promotes transparency and the services we Realtors provide, and builds the trust that is lacking in the industry.

Original published at https://dankrell.com/blog/2017/05/19/changing-real-estate-agent-commissions/

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