Whoa… it’s been a while.

So the thought is to open a “green” real estate office.  What does that mean?  We’re hammering it out.  We hope that it’s going to mean several things:  A “green” office, a “green” real estate resource center, agents trained in “green” homes, and “green” agents who take a more conscious look at the world around them.

I will hopefully comment more on this process soon.  Stay tuned.

Can You Share in Your Realtor’s “Bounty”?

I was reading a critique of the real estate industry not long ago, in which the author stated that clients (buyers specifically) pay close attention to how much commission their agents were being offered.  The author seemed to be implying that, since some properties offer bonuses and such to buyer’s agents, such agents may push them into certain properties regardless of their client’s wishes in order to secure said bonuses. 

 

While I can’t say that this never happens, I do like to turn the coin over and examine the other side.

 

I have often preached (seems like I’ve done it a lot recently) that if you do not trust your agent, you should not be using that agent.  That being said, since you and your agent know and trust each other, it is completely fair to ask an agent what the cooperative commission is on a property, and if there are any bonuses or extra commission being offered. 

 

The reason I bring this up goes to the Realtor Code of Ethics (a fascinating read if you are having trouble sleeping).  Basically, a Realtor cannot refuse to show you a property because it has a low cooperative commission offered, and cannot steer you to one specifically because it has a high co-op offered, or includes a nice bonus or incentive for the agent.  Realtors must always have the best interests of their clients in mind.  Therefore, if you feel you are being unreasonably pressured to put an offer on a property that does not suit you, either you and your Realtor are not on the same page, or, unfortunately, your agent may be concealing an ulterior motive.

 

Now, to truly look at the flip-side of this situation:

If you pick a property, and there happens to be a Realtor bonus or incentive, and your state allows it (I believe most still do), there is nothing preventing you from asking to split the bonus with your Realtor.  In many states, Realtors are allowed to give referral fees to non-licensed principals of real estate transactions (that would be buyers or sellers primarily).  Now, a seller doesn’t really benefit from this, because they already negotiated how much commission they are paying for this transaction.  But a buyer’s agent’s commission, as we have just learned, may fluctuate from deal to deal.  If there is more commission than expected offered, a buyer may ask their agent to participate in this surplus.  Be aware, however, an agent is free to say “no”. 

 

Also take the following into consideration:  Make sure this practice is legal in your area.  Make sure that such “referral fees” will not screw up your loan.  Ask how such monies must be reflected on your closing statement.  Etc. etc. etc… 

 

Just food for thought. 

A Different Way to Look at the Real Estate News

It’s easy to go wading through the week’s news and find dozens of stories about how the current real estate market is the worst thing since asbestos, but it another whole thing to try to read between the lines to see if there’s a silver lining.

 

How many times have I read recently that new home sales are so far down that they forgot what “up” is, and that construction starts have all but stopped?  Now, if you combine these two stats, something else stands out.  With fewer new homes being built, and fewer new homes on the market, aren’t there going to be fewer new homes sold overall?  In addition, it’s probably a good thing that there are not as many new homes currently under constriction, because it is not a good thing to continue to saturate an oversaturated market.  Therefore: Natural market correction?  You be the judge.

 

I also don’t care to think about how many times I’ve read that home prices are plummeting faster than people’s confidence that there will be cheap gas again.  Again, though if you look at it a different way, a couple things come to mind:  There are only a couple markets that are really hurting, which drags the “national” numbers down (though, as I’ve said before, there is no national real estate market…).  In addition, if these sale prices are down, it means that some people have found ways to sell their properties, which is a good thing (fantastic if you’re a buyer). 

 

If we add those two last paragraphs together, we find that there is less inventory being introduced into the market, and that people currently in the market to sell are finding ways to do so.  Following me?  Right now we have an abundance of sellers, and a paucity of buyers.  But, if these aforementioned trends continue, we should (hopefully) be at a point where the playing field levels again, and the buyers and sellers of the world can enjoy a more balanced marketplace. 

 

I therefore leave you with the following challenge:  Study your local market.  Know if prices are rising or dropping, for what types of properties, and why this is happening. Then spread your knowledge.

How Useful is a Useful Life?

I have been hearing a phrase used more often recently during property inspections.  The term “useful life” or “usable life” is used to make judgment on a certain home “system” (e.g. roof, HVAC, stove), and let a potential buyer know about how long an item or system has before one should expect it to be replaced or repaired. 

 

What troubles me is I am seeing more buyers take these estimates as gospel truth, and needlessly (and painfully) try to negotiate extra compensation from sellers to replace items which are not yet defective.  I even ran across an attorney who demanded a “useful life statement” from a developer, simply so that the buyer would have better leverage to file suit with should something go awry. 

 

Again, forgive me if some of my ideas sound a bit old-fashioned, but I tend to be of the mindset of “If it ain’t broke, don’t fix it”.  Sure, a roof could be 22 years old, but look at the bigger picture:  If it’s not leaking, and it’s not particularly eroded, then there is probably no reason to get worked up over it.  It’s a roof, and it’s doing its job.  Just keep an eye on it.

 

I also tend to apply this thinking to items that are sometimes marked “potential hazards”.  If one of these “potential hazards” currently exists in a non-hazardous state, who is to say that it will ever become a hazard?  Now, I’m not talking about a pool full of toxic waste in the neighbor’s back yard that has a pinhole leak.  More so, I am referring to the back yard that doesn’t have the best grading (slope) in the world, but is accompanied by a basement with no signs of water damage, and a solid, crack-free foundation.  Some people insist on throwing up the red flags and demanding repairs and/or repair credits, leaving sellers to wonder why, if it has never been a problem, this particular buyer can guarantee that it will be a problem.  

 

Getting back to “useful lives” for a second, I have seen pristinely maintained fuse boxes last way beyond what should have been their lifespan.  The same goes for refrigerators, tuckpointing, and porches.  I have also seen newer homes with extensive wiring and venting problems, leaky roofs, and drafty windows.  Where is the happy medium?  Honestly, I don’t belive there is one.

 

Use your common sense!  Without stripping everything out of a home and putting it back together piece by piece, there is no way to tell exactly when some element is going to fail.  Accept that things will fail when they do, and that part of the responsibility of owning a home is being vigilant with maintenance.  Don’t be hasty to insist that something be replaced simply because it looks like it might have to be sometime in the near future.  Analyze the price you’re paying:  Does it dictate brand new plumbing?  Or does it suggest that you’re buying a home that may need some plumbing maintenance down the road?

 

On the other hand, if you’re selling your home, and you know something needs to be fixed, don’t paint over it and try to hide it(!?!?)…  but that’s a topic for another time.

Stop Asking Me If the Neighborhood is Safe!

As a public service (or what have you), I like to try and answer the tough questions on real estate q&a sites.  One of the more disturbing trends I have seen is a dramatic increase in the number people asking if a particular neighborhood is “good” or “safe.”  Even more disturbing is that some Realtors are answering these questions.  Confused?  Let me explain.

 

Determining whether or not a neighborhood is “good” or “safe” is subjective.  Your definition of a safe neighborhood will vary greatly from what someone else might say.  There are a number of reasons for this.  Some people think neighborhoods with a lot of heavy traffic are safe, some may think it’s easier to get hit by a car, etc.  You could ask 20 people about a neighborhood and easily wind up with 30 opinions. 

 

It’s the same when asking about a “good” neighborhood.  Some people think good neighborhoods need to be filled with grocery stores and locally owned boutiques.  Some think that “good” neighborhoods must have the best area schools and a solid record of appreciating values.  In any case, a Realtor cannot (and should not) tell you what a “good” neighborhood is.  They can advise you on what a solid home is, and what a good value is.  In other words, a Realtor can tell you how many of your criteria are met by a certain area. 

 

I am using benign qualifiers for a reason (I am trying very hard not to offend anyone).  First and foremost, Realtors are precluded from giving their opinions on “good” and “safe” areas.  There are several reasons for this.  Primarily, it is to protect the public.  Say a bunch of Realtors got together and purchased property in a certain area.  They want to protect their investment, so they begin telling everyone that the area they bought in is far superior to others.  This would hurt investments made by others in other areas.  Even worse, say a Realtor is prejudiced against a certain group of people.  If that Realtor were allowed, he or she would probably try to keep people from moving to areas that were occupied by this group because those people make the neighborhood “bad” or “unsafe”.  Still worse, say a Realtor, looking to pick up some extra business, notices that a new group of people has started buying property in a certain area.  This Realtor then goes around to the existing residents, and tells them that the prices for the area will certainly fall, because this new group of people will lower property values.  These are all very bad things to do, and are in violation of fair housing, the Realtor code of ethics, etc.  Realtors can, and should, get in a lot of trouble for pulling stunts like this (so stop asking me!!!!).

 

The moral of this story is two-fold:  First, decide for yourself what constitutes a “good” or “safe” neighborhood for you, and then do some research using local neighborhood associations, police statistics, trusted neighbors, etc. to identify the areas in which you are interested.  Remember, Realtors can tell you where the nearest movie theater is, but not racial breakdown of who attends the shows.  Second, please stop asking or encouraging Realtors to violate their duties to the public, and, if you see it happening, please report it to the local Realtor board.  As I say, there’s no better way to experience a neighborhood than to actually experience it. 

 

Good luck!

You (Yes You) Can Help End the Real Estate “Recession”

First of all, I hate using the word “recession”.  Technically, I suppose it is, but, in my mind this is more of a correction.  Real estate was never meant as a “get rich quick” investment…  but it happened.  Now that’s being corrected.

 

Anyways, with that out of the way, here are several easy tips you can follow to survive the current real estate market.

 

1. Don’t sell your properties!  One of the problems we have currently is that there are too many properties on the market.  We need the current market to only consist of serious and/or desperate sellers.  Those who are simply looking to make themselves more comfortable by buying a slightly bigger place, or move 10 minutes closer to work need to pull their listings off the market and get comfy for a year.  If you truly do not NEED to sell, and you list your property anyways, you’re really doing yourself a disservice for a couple reasons:  1 – You won’t get as much money for your property now as you probably will in the next year or so.  2 – Unless you’re priced to sell in this market, your property will (most likely) linger, causing people to think that there may be something wrong with it.
   
2. Buyers be confident!  As I’ve said in past blogs, the adage is, “Buy low, sell high!”  With so many sellers competing for sales, now is a great time for “buying low.”  As real estate is typically meant for a long term investment, when, and for how much, you buy will dictate how much money you make in the end.  Therefore, with prices relatively low now, if you wait for higher appreciation rates, you’ll wind up losing money in the long run.
   
3. Settle your finances!  This is not the time for a 100% LTV, interest only, stated income loan (in hindsight, it never really a good idea).  If you’re in a high-risk type of loan, refinance your property!  You don’t want to be the next statistic quoted in some over-publicized report.   If it looks like you may be in trouble moving forward, start talking to your lender, attorney, etc., early and often to see what, if anything, can be done (rent it, refinance it, sell it if you have to…). 
   
4. If you are a buyer, put together a good down payment, mind your credit, and make yourself the most solid buyer you can be!  Why waste loan origination and processing fees, legal fees, and inspection fees, only to find out that one erroneous late payment is about to blow the whole deal?  Analyze the market carefully, use your resources (Realtors, attorneys, financial planners, etc.), and make a smart, well thought out decision.   

When the market flipped from being laden with buyers and short on available properties to long on properties and short on ready, willing, and able buyers, many people lost their minds.  Though congress will claim to have fixed the problem when it corrects, it will most likely be corrected through common sense and good planning.  I apologize if that seems like a dull answer, but it’s what I believe. 

 

When people were not thinking straight, or not thinking at all, it seemed like a good idea to buy the dark, cramped condo in the “hot” new development, because people were making money off of anything and everything real estate.  Now, with the tables turned, there is no demand for that same dark, cramped condo unless the price truly makes it a value.

 

Are you going to save the market yourself?  No.  But, with good planning and good advice, we will survive this correction, and return to a “normal” market soon.

Please Support Your Local Open House!

I try not to make a habit of pleading with the public, but…

 

In a world of virtual tours, video tours, talking signs, auto-response text messaging, 24-hour info lines, e-brochures, digital photography, zillow, trulia, and the rest, there are a lot of good and interesting properties that I believe people are not going to see, simply because some listing agents are not plugged in to all the new media sources. 

 

It has become easy to simply look through a bunch of e-mailed listings, pick the ones with the pretty pictures, and dismiss the rest.  This is where I see open houses and casual tire kickers (“gossipers”) being forced out of the real estate picture.  Why go look at a home that lacks a glitzy marketing campaign, or a slick video tour on youtube?  Why waste a perfectly good afternoon casually strolling the blocks of a neighborhood in which you are looking to purchase, seeing other houses that are not necessarily what you’re looking for, but could give you a perspective on the rest of the area? 

 

Let’s be honest:  Not all agents and/or brokerages have caught up to the technology revolution.  Not all agents have figured out how to load all their property’s info into one of the thousands of online real estate sources.  Some of these agents have gems of listings, too. 

 

It’s a little like comparing E-Bay to a yard sale.  You could spend all your time looking online for a potential treasure, along with millions of other people in the cyber-world, or you could take a break every now and then, and actually get out and get your hands dirty with the real thing. 

 

Some may say I’m terribly nostalgic, but in this world of “viral” marketing, sphere’s of influence, social networking, etc., you never know how your simple visit to a humble open house may contribute to a buyer or seller’s happiness. 

My Kingdom for an Apartment

As we approach the warmer months of the year, the minds of many people turn to a very specific subject:  Renting an apartment.  Having been through several summers of intense rental markets, for those of you who wish to take a note from an old veteran, here are my suggestions on surviving the big leasing months:

1.  Be reasonable.  The lessees:  Don’t expect granite kitchens, private balconies, and in-home laundry on a laminate counter, common yard, and laundromat budget.  The more reasonable you are with your search, the better you will feel in the end.  For lessors:  Don’t expect perfect credit, pre-paid rent, and single occupants (also be careful not to violate fair housing on that one) for your apartments.  These are the people who typically look to buy something. 

2.  Be nice!  For lessees:  Pay your rent on time, try very hard not to break anything, and be respectful of your neighbors and your landlord (try to wrap up any permitted parties at a reasonable hour and make sure to clean up afterwards!).  Respect the fact that someone else owns your apartment.  For lessors:  Leave your tenants alone (unless you absolutely have cause), fix things when they break, and be forgiving the first time your tenants lock themselves out (notice I only said the first time). 

3.  Be knowledgeable!  For lessees:  Read the lease before you sign it.  Most likely, you won’t need an attorney to review it, just use common sense.  Standard form leases are usually the safest bet.  Also, accept that the landlord will probably run your credit, and verify your employment and rental history.  For lessors:  Accept that the prospective tenant may ask your current tenants about you and your management style.  Also, be schooled on fair housing!  Don’t think that you can skirt the system by pleading ignorance!

4.  Be ready!  For lessees:  Have your checkbooks handy so you can put down deposits quickly.  Additionally, don’t dawdle with paperwork!  Applications, co-signer forms, leases, etc. must be filled out quickly if you want the apartment!  If you don’t, others may swoop in and steal your apartment!  This also means going apartment hunting with your whole party – roommates, significant others, parents, etc., so there is no delay trying to schedule multiple showings.  For lessors:  The same applies in reverse.  Be ready, willing, and able to sign a lease with a prospective tenant.  If you wait too long, or do not respond to them, your tenants may find alternative lodging!

5.  Be honest!  Lessees:  If you fib about your employment, and then find out you cannot afford the apartment you are in, you may face eviction and/or a lawsuit, which will negatively impact your credit report for years!  If something truly unexpected happens, being honest with your landlord will likely assist in finding a solution that works for both parties.  Also, if you break something, admit to it and/or offer to fix it.  For lessors:  If the dishwasher doesn’t work, if the windows are drafty in the winter, or if a freight train rumbles by at 4:45 every morning, let the tenants know before they agree to rent the apartment.  This will make for a much more amicable arrangement. 

That’s it in a nutshell.  Happy renting!

Zillow Does Not Know Your Home!

I’ve had just about enough of local and national news outlets quoting Zillow.com as the end-all source on real estate valuations.

Now, before I get accused of fighting to maintain some sort of Realtor strangle-hold on information, please consider the following:

1.  Zillow.com is a new technology.
2.  Zillow relies on information from local governments (typically assessor’s offices)
3.  Local governments (particularly mine: Cook County) are not particularly skilled at maintaining accurate, up-to-date information.
4.  Though they try very hard, and have some neat features, Zillow has no idea what your home looks like, and how/if you improved it (or how/if your neighbor improved theirs).  Zillow also does not access to or consider all the millions of appraisal reports that are filed each year.

Now, given that information, Can Zillow actually give a value to your home?  I say no.  They can give you a “ballpark” number based on a bunch of other “ballpark” numbers.  This is useful, but not necessarily reliable.

Therefore, when national news outlets report things like, “According to a Zillow report, 1/2 of all people who bought a home last year have lost money on their investments,” I get a little aggravated.  I know it’s splashy, and it gets ratings, but it’s causing people to lose faith in one of the smartest investments anyone will ever make: buying a home. 

So then, what dictates the value of a home?  Ultimately, the buyer; Not Zillow, nor the seller, nor CNN, nor can even a Realtor dictate price or value to a buyer.  What we are experiencing currently is a shortage or buyers and a surplus of sellers (that’s a subject for a different day), and not some sort of devaluation like what would happen in the currency market.  This means that sellers are all fighting to make their homes the most attractive to the buyers that are out there.  The primary way to do this is to lower their asking prices.

Do you own a home currently?  If so, don’t sell it unless you absolutely need to.  Are you looking to buy a home?  Do so with confidence.  Sellers are competing for your business as we speak (or blog). 

I hope this has been food for thought. 

Can the Department of Justice Please Focus on Something Important Now?

For those of you who have not been following along, for which I don’t blame you, the US Department of Justice filed an anti-trust suit against the National Association of Realtors, claiming that MLS practices were anti-competitive, and that consumers had little choice but to pony up at least 5-6% in commissions for the sale of their home. 

Now, anyone in the industry could have told you three years ago this claim was bunk.  Locally, in the Chicago area, I know of agencies that will take listings and post them in the MLS for $500, $1000, 1%, 2%. 3%, etc.  Anti-competitive?  Certainly not. 

The other claim was that non-bricks-and-mortar offices (i.e. web based brokerages) were being excluded from the process, as they were not allowed to access the MLS, and/or “traditional” brokerages were not granting showings to such agencies.  This, again, was largely bunk (I’m making bunk my word of the day).  Those that were excluded from the MLS were only those that did not join the MLS, and everyone with a license was free to join the MLS.  This is largely for the protection of consumers.

The Department of Justice was also concerned that, as the price of homes went up, the relative amount of commissions went up.  The percentages did not change much, but the amounts did (e.g. 5% of $300,000 is more than 5% of $200,000…  go figure?). 

Now, after three years, the settlement was: virtually nothing changes.  With the breadth of new websites that give almost anyone access to MLS data, licensees and non-licensees alike can peruse all the data they want.  The laws remain that only a licensee may be compensated for performing the duties of a licensee (go figure), and MLS members are going to play nicely with non-MLS members that want to conduct showings, submits offers, etc.  With both sides declaring victory, what really changed?

One article I read yesterday, which I cannot seem to find again (unimportant news cycles to the back pages so quickly), said that consumers can expect to pay around $2000 less per listing commission (i.e. realtors will charge $2000 less to sell your home).  I say: Bunk again.  As I already mentioned, Realtors in my area have, for years, offered “below market” or “discount” commission programs for consumers.  Caveat Emptor people:  You got what you paid for, and you will still. 

Traditional agents that charged higher commissions will continue to do so, and, most likely, provide a higher quality of service, better marketing materials, and have a greater knowledge of the market. “Discount” brokers will continue to charge lesser commissions, do less marketing, provide less service, and take listings in areas with which they are not familiar.  Some consumers will elect to go with more of a “full-service” brokerage, and some with a “discount” brokerage.  In all likelyhood, consumers will continue to get that for which they paid.  On top of that, some who used a full service brokerage will wish that they used a discount brokerage, and vice-versa. 

So what did three years, lots of hours of testimony, and a bunch of wasted expense prove?  In my opinion: they proved the system was basically OK the way it was.  Now, can the government please move on to something more important?