Real Estate News and Commentary

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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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.

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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May 12, 2017

Real estate auction home buying and selling

As the housing market continues to grow, buying and selling homes through the real estate auction is becoming more popular. Contrary to popular belief, real estate auctions are not just for distressed properties. Being part of a real estate auction can be exciting, but it’s not for everyone. There are pros and cons for both the home buyer and seller.

A real estate auction is traditionally a “live” auction performed at a designated place where the bidders and auctioneer meet to conduct the auction. You must be present, or have a proxy present, to make your bid. You must register to bid at the auction, usually presenting proof of funds for your deposit. The pace of the live auction can be very quick, so you have to pay close attention to the action.

Another form of real estate auction that has blossomed out of the foreclosure crisis, is the online auction. The online real estate auction allows many homes to be auctioned simultaneously. The atmosphere and pace of an online auction is different from a live auction. Of course, buyers can make their bid from virtually anywhere, and the bidding can take place over days or weeks.

If you want to sell your home via real estate auction, the benefits include: decreasing your homes time on market; you know when the home will sell; the home sells “as-is;” home buyer contingencies are typically few or none. The National Association of Realtors (nar.realtor) auction information describes homes that are good prospects (What Properties are Suited for Auction?) , which include: homes with a lot of equity; unique homes; vacant homes; and homes that are difficult to appraise.

However, real estate auctions are not for all sellers. The downside to the auction is that your home may not sell, especially if you place a reserve (seller reserves the right to accept or reject highest bid) on the auction. There are also costs that typically include the auctioneer’s commission and advertising costs, which could be due even if the home does not sell.

If you’re a home buyer, a real estate auction offers benefits for you too. Real estate auctions offer another avenue to purchase homes other than those listed in the MLS. This can be attractive especially when there is limited inventory of homes for sale. Buyers guide the sale price through their bidding. Unless it’s a blind bid auction (where bids are not disclosed to other bidders), you can decide if you want to increase your bid based on others’ bids.

If you want to buy a home at auction, do your due diligence. Read the terms of sale, there may be a minimum bid, minimum deposit, and even a buyer’s premium (which can be as high as 5 percent of sale price) and other fees that may be due at closing. Check the auction schedule frequently because the date and time may change, or the auction can be cancelled. Understand the type of auction you’re bidding in, because you may not get the home even if you’re the highest bidder (especially online auctions). Inspecting the property may be a challenge as you may have limited access.

Hire a Realtor to help you buy a home at a real estate auction

Hire a Realtor to assist and guide you through the details of buying a home via real estate auction. Your agent can help you get the terms of sale and any due diligence material the auctioneer provides. Additionally, they can also provide comps for the property to help you decide on your bidding strategy. If you have the winning bid, your agent can help you with the details of getting you to settlement by assisting with contracts, financing, and other aspects of the sale.

From the National Association of Realtors auction section:

BENEFITS TO THE SELLER:
-Buyers come prepared to buy
-Quick disposal reduces long-term carrying costs, including taxes & maintenance
-Assurance that property will be sold at true market value
-Exposes the property to a large number of pre-qualified prospects
-Accelerates the sale
-Creates competition among buyers—auction price can exceed the price of a negotiated sale
-Requires potential buyers to pre-qualify for financing
-The seller knows exactly when the property will sell
-Eliminates numerous and unscheduled showings
-Takes the seller out of the negotiation process
-Ensures an aggressive marketing program that increases interest and visibility

BENEFITS TO THE BUYER:

Smart investments are made as properties are usually purchased at fair market value through competitive bidding
-The buyer knows the seller is committed to sell
-In multi-property auctions the buyer sees many offerings in the same place at the same time
-Buyers determine the purchase price
-Auctions eliminate long negotiation periods
-Auctions reduce time to purchase property
-Purchasing and closing dates are known
-Buyers know they are competing fairly and on the same terms as all other buyers
-Buyers receive comprehensive information on property via due diligence packet

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May 5, 2017May 5, 2017

Home listing syndication is big business

Your home listing is a hot commodity! Not just to home buyers looking to buy, but to those who buy and sell information on the internet. MLS home listing information syndication is big business.

Much of what you see, hear, and read on TV, radio, and the internet is syndicated and distributed through a broad network of affiliated outlets. The purpose is to have as large of an audience as possible. The larger the audience, the larger the advertising revenue. Syndicating and distributing media content has been around for a very long time, and has been very a lucrative industry for those involved.

Internet syndication is no different and has become sophisticated, such that websites will pay for licensed content. The content attracts visitors and generates revenue via ads and/or pay-per-click. Needless to say, internet syndication has developed to become a multi-billion-dollar industry.

When you think about making money in real estate, you probably think about buying and selling property, not the internet. Most people don’t realize that real estate information generates $billions on the internet. Real estate portals generate revenue by publishing content that attracts home buyers and sellers. The sought after content, of course, is your home’s MLS listing. Websites generate income by selling real estate and other professionals access to consumers who visit their sites to view your MLS listing.

You may not know this, but your home’s listing is copyright-protected by your agent’s Multiple Listing Service. The content is licensed and syndicated to internet real estate portals and other publishers for a fee. How much do websites pay for MLS licensed content? Heck, you’d be hard pressed to find that information, much less acknowledgement that there is a fee paid at all! And I suspect that information is not readily disclosed because consumers would be up in arms if they knew.

However, an article by Natalie Sherman appeared in the Baltimore Sun on January 27, 2015 (MRIS looks to partner with Zillow) gives a hint about the monetary relationship between MLS boards, syndicators and publishers. Ms. Sherman wrote:

“Under the current system, Zillow pays to receive listings from Listhub.com, which has agreements with hundreds of multiple listing services, including MRIS, to provide syndication services to sites such as Zillow. Earlier this month, Zillow and Listhub said their existing deal would not be renewed.

A representative for Zillow, which has been working to establish more direct relationships with brokers and listing services for years, said a new deal would help keep the site more up to date.”

The article refers to the 2015 shakeup of real estate listing feeds to specific websites, such as Zillow. At that time, Zillow sought direct deals with individual MLS boards, such as our local MRIS (now part of Bright MLS), to get MLS home listing feeds.

Chances are that you are unaware that the information about your home that is uploaded to the local MLS (including pictures of your home) become the property of the MLS. Much less, you may not know that the information is licensed to others for a fee to be used on other websites.

Even though the MLS boards charge subscription fees to agents for the privilege of uploading and viewing content, they might argue that the fees generated by licensing and selling your information helps maintain the MLS system. However, not disclosing this aspect of the real estate listing poses some ethical questions that must be addressed.

Of course, there are real estate brokers who have opted-out of syndication of their MLS listings. These brokers want to retain control of home listing information to ensure accuracy and maintain professionalism when presenting your home to the public.

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