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July 16, 2022July 16, 2022

Back to the future for residential real estate

If you consider the roots of brokerage in residential real estate, you can imagine how much the business of selling homes has changed. Unlike today, the first real estate brokers were independent. Their “listings” were exclusive and proprietary. Buyer agents didn’t exist until well over one hundred years later. And at the beginning, there was no broker cooperation on listings and commissions.

Of course, everything changes over time. Brokerage cooperation began with loose networks of brokers who agreed to help sell each other’s listings. Early multiple listing services evolved out of those local networks. And as the real estate industry adopted emerging technologies, the MLS concept evolved into the listing service we know today.

The MLS framework promoted the evolution of real estate brokerage as well. Centralizing and standardizing listed homes made home searching easier for brokers and their respective buyers.

Brokerage cooperation allowed agents and brokers to sell others’ listings to buyers. Up until the early 1990’s, all agents and brokers represented the home seller. However, it’s likely technology and a robust MLS fostered buyer agency and dual agency.

It seems as if it wasn’t until the advent of buyer agency when people began questioning agency and compensation. Prior to buyer agency, the commission was negotiated between the listing broker and the home seller. Selling agents (those who brought the buyer) were a subagent of the seller, so it made sense that the commission would be shared with subagents.

The commission structure of today’s listing agreements seems to be an antiquated carryover, where commissions are “shared” with sub agents and exclusive buyer agents.

As an aside, it’s common, if not required, for a buyer agent to disclose to their clients their compensation amount. If the coop commission is less, they will likely collect it from their client.

Currently, real estate agent and broker compensation is undergoing a meticulous and exacting scrutiny inside and outside of the industry. During the last two decades, there have been legal challenges to the industry’s status quo on residential agent and broker compensation. However, recent legal proceedings have gained traction such that a growing number of real estate brokers are embracing a possible future with “decoupled” commission.

When change is afoot in the housing industry, there is a lot at stake for real estate brokerages. Although the outcome to the current challenges of real estate compensation is uncertain, the result may be that residential real estate brokerage comes full circle, where buyer and seller compensation are respectively exclusive.

By Dan Krell
Copyright © 2022

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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 9, 2021March 9, 2021

Home Selling Strategy

There is an idiom that says that the “Map is not the territory.” One interpretation is that you shouldn’t confuse theory with reality. And in real estate, that means you shouldn’t confuse the strategy with the market cycle. And as this seller market cycle continue, some home sellers are confusing it as the implementation of a brilliant home selling strategy.

Low home sale inventory seems to be the new normal since the Great Recession. Home owners are staying in their homes longer, and first-time home buyers are putting off buying a home to save money. And the current market cycle highlights how pent-up home buyer demand can drive home prices. In this market, appropriately priced homes sell fast, usually within a week. Many times, homes will get multiple offers and sell over list price. The truth is that current conditions are a manifestation of the market. However, home sellers come to expect homes to sell in a week for over list price, even when the market changes. The answer to a successful sale in any market is to create a home selling strategy.

Regardless of the housing market conditions, you need a home selling strategy (also known as a marketing strategy) to sell your home. The marketing strategy will determine the best way to position your home to get your home sold in an expedient way at the best price. It’s a map that you create to get you to a successful closing.

Your home selling strategy research should be focused on your neighborhood, as well as competing neighborhoods. Many begin with a comparative market analysis (or CMA). A CMA is a process of determining a potential home sale price by evaluating neighborhood sales of similar homes in style, size, and age. In a buyer’s market, when homes are taking longer to sell, you should get a 30-60-90 day analysis to determine the trend of sale price and days on market. In a seller’s market, the trend is usually where homes sell relatively quickly. However, the CMA can assist in understanding pricing trends.

One of the interesting aspects of a detailed CMA is the comparisons of characteristics and features between your home and other homes that recently sold. From the analysis you can begin to see what makes your home stand out from the others. You may discover your home has more or less amenities than other neighborhood homes, which should be considered in your pricing strategy.

List price is everything. Your home sale strategy hinges on pricing your home correctly. Regardless of market conditions, if the house is prices too high it will likely take longer to sell (relative to the average time on market). Homes that are prices correctly tend to sell faster than over priced homes. Many home sellers trying to reap “top dollar” have made the mistake of setting the list price too high expecting a home buyer to make an offer. The truth is that buyers are savvy and will likely skip the over priced homes. Your strategy, no matter how clever, can’t overcome overpricing.

Preparing your home should also be part of your strategy. Decluttering and deep cleaning is a must for all home sales. Whether or not you live in the home, you should consider staging. “Home staging” is a term that is used to describe the process of making your home as appealing as possible to potential home buyers to sell the house quickly. This may include rearranging and/or removing furniture. Some home sellers rent trendy furniture to replace their own items.

By Dan Krell
Copyright © 2021

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February 14, 2021February 14, 2021

3D Printing Home Building

When you think of modern home construction, you typically think about (wood) sticks and bricks. And it’s been that way for decades. But since its introduction in 1983, tech visionaries thought about using the 3D printing to build houses. What was once a futuristic dream of 3D printing home building is now a reality.

In his 2017 commentary, Sean Mashian lays out how 3D printing will change the landscape of home building and real estate (The impact of 3D printing on real estate; Cornell Real Estate Review; 2017. 15, p64-65.). He discussed how the technology was used and the potential for the housing industry. His assessment was that large scale commercial 3D printing technology was rudimentary and expensive. Instead, the industry mostly used the tech for smaller projects, such as scale models for new home developments. However, like any new technology, he expected large scale commercial 3D printers to become more commonplace as the tech emerges. He predicted the potential of 3D printing growth, just as internet tech and e-commerce grew in the early 2000’s.

In order to grow the technology of 3D printing home building , pioneers like Apis Cor (apis-cor.com) are needed. Apis Cor claimed to be the first company to develop and deploy a mobile construction 3D printer capable of printing a complete house on site. About five years ago, Apis Cor made headlines when they “printed” a house in 24 hours. Although. the one level 400sf home was rudimentary, it demonstrated the flexibility of the 3D printing technology. The home was 3D printed completely on site and in mid-winter.

The 3D tech is already being used in some manner in the housing industry. A 2013 article in Kitchen & Bath Design News (Design and the 3D Printing Revolution) reported on design companies that were using 3D printing to manufacture personalized home fixtures. And in 2019, the National Association of Homebuilders reported that 3D printing tech is already being used by a small number of builders to produce architectural details for homes.

A January 11^th National Association of Home Builders release discusses how 3D printing can change the industry (How 3D-Printed Structures Could Disrupt Housing; nahb.org). Although the NAHB states the tech is still developing, there is a belief that it will address several concerns about housing:

First, it will make homes more affordable. Currently, 3D printed homes are relatively small, which reduces materials and time to build the home. Automation significantly reduces labor costs. Additionally, some 3D printed homes can be built without a foundation, which also reduces time, materials, and costs.

Second, home building will be more sustainable. The technology inherently has little waste. Each house is “printed” with the necessary material. Besides incorporating green technologies, the structure is printed in such a way that it improves energy efficiency.

Third, 3D printing home building designs are easily changed in an automated system. The design flexibility can make numerous shapes that can address fast paced changes to the housing market.

And last, building delays are almost eliminated. Whether the houses are printed on site, (such as Apis Cor’s technology) or built in a facility, the rapid building time reduces weather impact. Depending on the home size and printer capability, a home can be built in as little as 24 hours or up to several weeks. This type of productivity greatly reduces time and delay costs due to labor and materials.

By Dan Krell
Copyright © 2021

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February 5, 2021February 5, 2021

Short Sale Home Selling

As you probably know, it’s been a sellers’ market with many listings getting multiple offers. With such a strong housing market, it would seem unthinkable that some home owners would be underwater on their mortgages when selling their homes. But the fact remains that there are many home owners who have to go through the short sale home selling process to sell their homes.

On the face of it, the January 14th press release from ATTOM Data Solutions (attomdata.com) seems to add credence to the housing market’s strength, touting that foreclosure activity is the lowest in sixteen years. The report stated that default notices, auctions, and repossessions decreased 57 percent from the previous year, and decreased 93 percent from 2010’s peak would seem to be terrific news. But the low foreclosure activity stats are actually a manifestation of a government moratoria on foreclosure activities that was imposed due to the pandemic emergency.

Rick Sharga, Executive Vice President of RealtyTrac, an ATTOM Data Solutions company, stated “The government’s moratoria have effectively stopped foreclosure activity on everything but vacant and abandoned properties. There is a backlog of foreclosures building up – loans that were in foreclosure prior to the moratoria; loans that would have defaulted under normal circumstances; and loans whose borrowers are in financial distress due to the pandemic.” Further commenting on the foreclosure backlog, Sharga believes that the foreclosure wave won’t be as bad as what occurred prior and during the Great Recession. But he cautioned that we won’t know how large the foreclosure wave will be until the moratoria expires.

So, in the face of a strong housing market, there are many home owners who need to sell (due to job loss, job relocation, divorce, etc.) but can’t because the proposed sale price is short of the amount needed to cover the costs of selling (which typically includes mortgage, closing costs, realtor & title fees, etc.). This is where a short sale can be considered.

A short sale is basically when your sales net isn’t enough to pay the mortgage(s) on the property. In many cases, short selling home owners don’t have the funds to make up the shortage needed at settlement. Instead, they seek lender approval to allow a lower mortgage payoff in order for the transaction to close. Because short sales have become a common form of transaction in the real estate landscape, the process has become more standardized since the Great Recession. Although the typical time to complete a short sale can take three to six months, short sales can take as little as forty-five days. However, it’s important to note short sale approval can also take more than six months.

Although the core process is the same, lenders have different requirements when collecting information and conducting their due diligence. Having a professional negotiator helps facilitate your short sale. Seasoned short sale listing agents typically work with experienced attorneys to negotiate and handle the process.

If you are thinking of short sale home selling, interview several experienced and local short sale agents. Ask about their track record for successful short sales and how they work on your behalf to get the job done. Also talk to their negotiator, and ask about their track record in successfully negotiating short sales.

When considering a short sale, consider all your other options as well and get professional advice from an attorney and CPA to determine your best solution.

By Dan Krell
Copyright © 2021

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January 4, 2021January 4, 2021

Negative Interest Rates Redux

Negative interest rates used to be a controversial topic. However, countries such as Japan and those in the European Union entered into the uncharted waters to stimulate their economies in the years following the Great Recession. Back in 2015 there was speculation that the US was headed into negative interest rates too. But those thoughts quickly vanished as the economy rapidly expanded after 2016. But with the prospect of more economic distress down the road with on-and-off again lockdowns and business restrictions, are negative interest rates on the table again?

What are “negative interest rates?” A very rudimentary explanation is it’s when interest rates go below zero. Meaning that instead of borrowers paying interest on loans, the lender pays the borrower. It may sound backward to what we are used to, but it is a “tool” that central bankers may employ in times of severe financial crisis.

Although many economists contend that negative interest rates are a viable short-term option to respond to a severe financial crisis, it is uncertain the policy works as intended. Negative interest rates expose a vulnerable economy to future financial downturns. Additionally, some are concerned about long-term deflationary effects, while others fear it results in hyperinflation. Some experts point to the potential of a paradoxical effect of freeze community lending. This can occur if investors hold onto their cash, instead of depositing it with banks for zero interest (or even having to pay the bank to hold their money). This lack of investment has the potential will reduce banks’ available capital to lend.

The possibility of negative interest rates in the US is once again a hot topic. A 2020 NAR report discusses this option (Expectations & Market Realities in Real Estate 2020-Forging Ahead; nar.realtor):

“There is nothing stopping the U.S. from moving into negative interest rates, but several issues would arise should the U.S. decide to take that plunge. One of the biggest fears is that the FOMC [Fed Open Market Committee] would not have any tools left to employ when the next downturn occurs. Global investors might lose faith in the safety of U.S. government bonds as negative interest rates and other forms of quantitative easing may be perceived as a sign of weaknesses in the economy. In addition, the portfolios of millions of U.S. investors would likely be hurt. According to the Office of Management and Budget, $16.8 trillion of the government’s $22.7 trillion debt is held by the public of the U.S. A large portion of the holders of U.S. debt are retired or soon-to-be retirees who have their portfolios in risk-free U.S. Treasurys. Many federal programs, including Social Security, Medicare and Medicaid, are also heavily invested in Treasurys, meaning these public programs would most likely lose money on the aggregate due to negative interest rates.”
(Expectations & Market Realities in Real Estate 2020-Forging Ahead; nar.realtor)

Could we see negative interest rates in the US?

In their recent statement of the FOMC (federalreserve.gov), the Federal Reserve believes that although economic activity and employment are recovering, the health emergency has caused a tremendous human and economic hardship in the US (and globally as well). If extraneous events are unchanged, “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” However…“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Original published at https://dankrell.com/blog/2021/01/04/negative-interest-rates-redux

By Dan Krell
Copyright © 2021

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