iBuyers are Just House Flippers

ibuyers
How much is your home worth? (infographic from nar.realtor)

Disruption in the marketplace seems to be the standard these days. So, it should not come as a surprise that the iBuyer phenomenon has taken hold of the real estate industry and is expanding.  What started out as an experiment in limited markets has grown into the internet version of “I Buy Houses.” (You’ve probably seen the “I Buy Houses” bandit signs around town.)  Nonetheless, iBuyers have become the trendy and acceptable version of house flippers.

According to Zillow, an iBuyer is “…a real estate investor that uses an automated valuation model (known as an AVM) and other technology to make cash offers on homes quickly.”  And although Zillow’s explanation of the iBuyer model describes that the home gets sold to the investor sight unseen, many will actually visit your home before finalizing the deal.

Automated valuations are helpful but not always accurate. Additionally, investors typically apply their AVM derived value into a formula to produce their offer price. Because they are akin to the Pawn Shop of the real estate industry, where they have to build in a profit for them, house flippers usually offer 70-75% of retail value (after repairs).

House flipping by any other name is still house flipping.  But the iBuyer trend has put a shiny veneer to the business.  The model allows for anonymity, at least initially, by giving you an offer to buy your home just by completing a form.  However, just like traditional real estate investors, iBuyer representatives will visit the home to confirm the accuracy of the reported home’s condition and other vital facts. 

If you’re looking to get top dollar on your home, you’re probably going to be disappointed with the iBuyer offer (or any real estate investor offer for that matter).  However, you might be willing to accept a lower offer on your home for a quick closing and selling “as-is.”  The desire of convenience of selling to real estate investors is confirmed by ATTOM Data Solutions 2018 Year-End Home Flipping report that indicated “207,957 U.S. single family homes and condos were flipped in 2018” (attomdata.com).  Although house flipping is down four percent from 2017, the numbers indicate a continued willingness by home owners to deal with house flippers. 

Don’t think you’re escaping the 6 percent commission when selling to iBuyers.

Patricia Mertz Esswein wrote recently that the iBuyer convenience comes at a cost (Kiplinger’s Personal Finance. April 2019, Vol. 73 Issue 4, p12).  She explained that iBuyer service fees range from 6 to 13 percent, which exceed Realtor commissions that typically range in today’s market from 3.5 to 5 percent!

Currently, most iBuyers are exclusive to specific markets that make the model financially sound.  However, new iBuyer companies are throwing their hats into the ring and expanding the model in new markets nationwide.  An article from the California Association of Realtors’ magazine (The Era of iBUYERS?; California Real Estate. September 2018, Vol. 98 Issue 6, p22-25) discusses the pros and cons of iBuyers and explains that the phenomenon is still in its “infancy.”  Meaning that iBuyer companies are still cautiously expanding in hot markets.  Furthermore, you should be wary of real estate brokers who engage in making iBuyer (or similar) offers as part of their listing service because it could be in conflict of their fiduciary duties to you.  

If you’re wanting to get top dollar on your home, you probably will go the traditional route and list on the MLS.  But, if you’re looking for a quick sale, explore all of your options.  Solicit and compare iBuyer offers to local real estate investor offers.  Also, consult with several real estate agents to not only get a picture of your home’s value, but they may have buyers for your home too. 

Original published at https://dankrell.com/blog/2019/05/13/ibuyers-are-just-house-flippers

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.

Short sale is still relevant

short sale
Market conditions makes the short sale relevant (infographic from nar.realtor)

Believe it or not it’s been over ten years since the financial crises and Great Recession, and the short sale is still relevant! And this is why…

Coming on the heels of a dismal January, the National Association of Realtors March 22nd data release announced good news declaring a home sales “surge” during February (nar.realtor).  February’s closings increased 11.8 percent, compared to January!  But the bad news is that the number of sales also decreased 1.8 percent from last year. If you follow real estate news, you know that homes sales stats were disappointing during the winter. (Consider that 2018’s total existing home sales were lower than the previous year’s total, according to NAR’s statistics).  February’s adjusted annual home sale rate of 5.51 million is lower than the same time last year, and pales in comparison to the 6.48 million home sales in 2006.    

Although February was indeed a busy month, NAR’s March 28th data release of the Pending Home Sale Index predicts a slow start to the spring market.  Homes that went under contract during February decreased 1 percent from the previous month and decreased 4.9 percent from the previous year.  This “forward looking index” indicates that next month’s home sales may disappoint. 

But there is a silver lining.  Home sale prices continue to rise, meaning that home owner equity is not eroding. February’s median existing home sale price increased 3.6 percent from the same time last year.  And according to NAR’s statistics, home sale prices have risen for 84 consecutive months (which equates to 7 years of continued gains)!

There are many reasons for a short sale

Although home sale prices are rising, there are still many home owners who are underwater. According to Attom Data (attomdata.com), distressed home sales still account for 12.4 percent of all home sales.  Of course, this is far from the 38.6 percent in 2011.  And the percentage of distressed sale continues to decrease.  However, the number is still significant. 

It’s estimated there are millions of underwater home owners.  There are a number of reasons why home owners may be underwater, including (but not limited to) years of deferred maintenance, or a negative equity mortgage.  Many short sales today include investment properties.  Some home owners don’t know they are underwater until they list the home for sale. 

Although not as prevalent as in 2011, the short sale is still relevant!  Many underwater home owners don’t have to sell, as they are not financially distressed, and are happy to stay put for many years. However, some are compelled to sell for a number of reasons (such as divorce, bankruptcy, etc.).  Some underwater home owners may have a desire to move, but can’t because they are underwater (such as empty nesters and retirees). 

If you think your home sale may result in a short sale, get the facts.  Question what you hear from others and what you find on the internet.  There is a lot of information circulating about short sales.  A majority of the information is either misleading, erroneous, and/or outdated.  Consult with an attorney who negotiates sales to help you understand the legal aspects.  Also consult your accountant for the financial implications.

There is much to consider, and a lot at stake!  Be careful when considering your listing agent.  Due your due diligence and hire an experienced short sales agent that knows the process and is savvy about appealing lender values.  Many listing agents will give up on a short sale, mostly because it’s hard work. So most important, make sure your agent has a track record of getting the short sale to settlement.

Original published at https://dankrell.com/blog/2019/04/18/short-sale-is-still-relevant

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.

Over-aggressive agent harassment

over-aggressive agent
When Over Aggressive Agents Abuse Technology (inforgraphic from nar.realtor)

Something has happened in the last few years where unsolicited phone calls and text messages have hit critical mass. It’s bad enough that unscrupulous individuals take advantage of technologies, such as phone number spoofing, to scam consumers. But it’s not a good sign for an industry when “professionals” abuse technology without regard to the law. You’re not alone if you’re feeling harassed by over-aggressive real estate agents who place multiple unsolicited calls and texts daily. There is a way to stop the over-aggressive agent calling and texting harassment.

When over-aggressive real estate agents abuse technology

Like other industries, technology has been integral in evolving the business of real estate in the last twenty years.  As a result of proper application, consumers are empowered.  However, some technologies are abused by real estate agents.  The combination of aggressive sales tactics and technology can sometimes go over the line and become harassment.  Recent lawsuits highlight alleged abuse of technology by real estate agents.

A recent class action lawsuit filed in California is taking on real estate agents who “cold call.”  Realtor Magazine (Cold Calling in Real Estate Under Fire in New Lawsuit; magazine.realtor; April 8, 2019) reported that the suit originated from a request for the defendant brokerage to stop directing their agents to make unsolicited calls.  The suit alleges that calling without consent violates the Telephone Consumer Protection Act and unsolicited auto-dialer calls violate the Federal Trade Commission’s National Do Not Call Registry.

The plaintiff alleges that he received unsolicited calls from multiple agents affiliated with the same brokerage to his cell phone, which is listed with the National Do Not Call Registry.  The calls solicited to re-list his home after it did not sell.  Although it’s sometimes easy to find a phone number (typically a land line) associated with a property, the plaintiff said his cell phone was not associated with the property listing in any way. 

Two other lawsuits filed earlier this month in Florida focus on unsolicited texting.  In one, the plaintiff alleges they received thousands of unsolicited text messages, violating the Telephone Consumer Protection Act, advertising homes for sale.  The other alleges the use unsolicited texting to find potential home sellers.

Haru Coryne, for the Real Deal, reported that the suits are really about the abuse of auto-dialer technology that transmits “thousands” of text messages from a spoofed local number (Unsubscribe! Resi brokerages sued over text message spam; therealdeal.com; April 4, 2019).  The founder of a popular real estate technology platform acknowledged to Coryne that real estate agents who use these technologies without knowing the law can get into trouble.  He further stated, “A typical real estate agent will have five, six, seven programs, probably never took the time to see what the law is. [But] Just because they offer it doesn’t mean you can abuse it.  It’s like eating candy and wondering why you’re getting fat. You can’t take technology and abuse it and wonder why you’re getting sued.”

There are many platforms selling these services to real estate agents.  New technologies mine data (including emails and phone numbers) and “communicate” with consumers (including internet auto-dialers).  There are several popular services that sell contact information (including cell phone and email) for expired listings and Sale by Owner.  The data can be used in conjunction with text/email broadcasting, phone number spoofing, and auto-dialers.  Many consumers feel harassed by the over-aggressive agent because they are bombarded with auto-dialers, texts, and emails, after opting-out or asking the agent to stop.

Stopping the over-aggressive agent

If you want to stop unsolicited calls and texts from the over-aggressive agent, simply opt-out. If they continue, contact the agent. Contacting the agent should put an end to the unsolicited communication. However, you may have to call the agent’s broker. If, in the slight chance, you continue to be bombarded with unsolicited communication after opting out and contacting the agent’s broker, you may have to consult an attorney.

This can be a watershed moment for the industry to educate consumers about professional Realtors and reign in the “bad actors.”  The National Association of Realtors (nar.realtor) and local Realtor associations advocate for the responsible use of technologies and cold calling.  With regard to telemarketing, the NAR states, “There’s no fine line or gray area: There are laws you must not break. But you still have a lot of flexibility on the right side of the law.” 

By Dan Krell
Copyright © 2019.

Original located at https://dankrell.com/blog/2019/04/15/over-aggressive-agent-harassment/

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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.

After you move in

after you move in
After you move in

Moving into your new home is exciting.  You just went through an intensive process that tested your character.  You feel a sense of relief it’s over.  But the work is not over, it’s just beginning.  What you do after you move into your new home can help maintain its value. It also can save you time, money, and keep your home functioning.

Of course, there are the standard items that needs immediate attention after you move in.  Changing the locks is the number one item on the new homeowner list for obvious reasons.  Deep cleaning the home is a task that is also performed, especially if the previous owner had pets.  Keep all warranty information, including a home warranty policy (if you have one), in a safe place so you can find it if you need it.  Make sure you know where the water shut off valve and the main electrical breaker is located in case of an emergency.  Change of address forms from the USPS need to be completed to ensure you receive your mail.  A visit to the DMV is necessary to change the address on your driver’s license. 

But what else can you do after you move in to make life easier in your new home?  Revisit your home inspection report.  If the home seller made repairs, make sure you keep those invoices (your agent should have asked for those receipts prior to closing).  If there is a problem with any of the repairs, you can call the associated contractor to reinspect the repair.  However, it’s likely that the seller didn’t repair everything in the inspection, or maybe they didn’t repair anything.  Review the report to see which items require your immediate attention, or may require attention within the year.  Make sure you install any missing safety items (such as smoke and carbon dioxide detectors).  Taking care of the urgent items immediately will likely prevent expensive repairs down the road.  Keep the list of items likely needing attention in the future, so you can check them when you conduct regular maintenance.

Next on the list , after you move in, is to create a maintenance schedule.  For most new home owners, maintenance seems to be a dirty word.  After all, you just moved in and the last thing you want to focus on is “upkeep.”  But putting off repairs can make the likelihood of damage to your home and repair expense increase over time.  Research has even verified that deferred maintenance lowers your home’s value.  Your home inspection report also should have information about maintaining systems such as (but not limited to): HVAC, electric, plumbing, roof, and exterior.

If you haven’t yet created a maintenance budget, do it now.  Some of the systems may need replacing sooner than others.  Check your home inspection report for the systems’ age and average life expectancy.  Start saving to replace systems (HVAC, roof, etc.) so it’s not as much of a financial burden when the time comes to replace them.

Life happens and so does the occasional surprise.  It is not uncommon for maintenance and other “surprises” to occur your first year in the home.  Although it may seem correct to blame the home inspector, they are not perfect.  They are limited to what they can see.  “Surprises” often occur in a system or area that was not observable during the time of the inspection.  It is my experience that home inspectors make themselves available within the first year of ownership to answer questions relating to their report.  Some will even reinspect the item in question. 

Original published at https://dankrell.com/blog/2019/04/09/after-you-move-in/

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.

Climate change and your housing budget

climate change
Climate change and your housing budget (infographic from energystar.gov)

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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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.