Thursday, February 27, 2014

A House-buying Strategy for 2014: Accommodate the SDTs!

In my time as a real estate broker, buyers could usually find a home in three or four months. Sure, there were exceptions. But even when things got tight for first-timers in 2011-2012, they could usually find an acceptable house in that time frame. Pressure came from too many buyers, many of whom were downsizing Boomers or investors with cash. Also, many of the homes were short sale properties or even foreclosures that needed work. That was hard to accommodate with the few financing programs available.

The point being, if one is to be made, that there's always Some Damned Thing (SDT).

Now, it's a cacophony of media voices yowling like cats in a Jacuzzi. Prices going up (better hurry before it's too late). Now is a great time to buy a home (and it always will be). Interest rates are low (and they might go up any second). Not enough listings. Everything gets backup offers with escalator clauses. It seems as though that's all we're reading or hearing about these days.

Except the reporters' sources for their news are almost always real estate brokers. Isn't that like asking R.J. Reynolds if tobacco is good for you? It's the au courant SDT.

In reality, prices have either stabilized  or stopped their growth trend in most markets. Sales of existing homes have been off for several months, and the pace of new homes has slacked (of course, micro-markets have their own trends). Applications for purchase money mortgages have fallen off.

But still: What's a buyer to think? Well, The Captain has an idea: If you're thinking about buying a house, stretch out your time horizon a little bit. If I were still advising clients, I'd suggest moving their house-acquisition time up a good bit, like six months or even more--maybe even a year.

That way, you don't have to jump at the first house you see. If told you have to add an escalation clause or you'll lose the house, you can just say, "Whatever," instead of freaking out. If told listings are few and competition is tough, you can say the same thing.

Why? Because not only do you have the money, Honey, but you've got the time. You may miss out on a house, but if your time horizon is out there a ways, you'll find another one and make your decision without pressure.

And you can put any SDT to rest.

Tuesday, February 25, 2014

Broker Compensation Changes Pt.2?

We've written posts before on how real estate brokers are paid, most recently this one talking about startups and others whose brokers don't get paid through a sales commission. Are changes for real?

The fact is, I don't know. Based on the money, you'd think so. But it's an H.L. Mencken public out there, made up of people who'd rather bite than switch. Why the home buying/home selling public continues to retain substandard brokers over good ones and pay everyone the same same based on the close of a transaction makes no logical sense. But then, neither does quantum mechanics nor Winter Olympics on the Black Sea.

In my final year of being licensed, I worked with three clients who paid me with a fee-for-service (FFS) arrangement. Two were sellers and one was a buyer. They paid upfront and saved thousands of dollars compared to a sales commission.

But I'd offered an FFS option for a couple of years, and no one was really interested, even after assessing how much money they'd keep. I've heard the same thing from other brokers over the years--people just choose the commission despite compelling evidence of significant savings with FFS. Change is slow, for whatever reason.

Returning to our lens is, about whom we've written before. Apparently, this thing isn't going away. One of their brokers is hitting it pretty hard. We'll see if it has legs.

Will things change? Maybe. Brokerages are having a difficult time attracting young people to the profession, and it may be that Gen Y people just don't want to work on a commission basis. But change is problematic for most brokerages, because their business models revolve around keeping cuts of their agents' commissions. But the status quo light bulb is flickering.

Another factor is the present market. Despite the sunny exhortations of those whose objectivity is compromised by their professions, this market isn't going to be great any time soon. It's not flatlining by any means, but it's pulse is suspect, meaning steady commissions could be problematic. That's not going to attract many newbies unless they can count on a paycheck.

Friday, February 21, 2014

Can Real Estate Brokers be Ranked?

There's a movement afoot led by the big box franchise brokers to rank the agents they employ. Be concerned. First off, be concerned about any afoot movements. Second, big box brokerages haven't had many good ideas since Eisenhower was president.

Third, I say "employees" euphemistically at best. Real estate brokers are all independent contractors, receiving no benefits, workman's comp, nor anything else from their putative employers. But still, here's what's right with said afoot movement: Brokerages claim they want to give consumers an idea of whom they're (consumers) doing business with. Fair enough, on the face of it.

But here's what's wrong with said afoot movement: Nearly everything else. Brokerages make money one way--taking part of their agents' commissions. If a company ranks its own product, how can the ranking be objective? If Nordstrom, say, claims its shoes are better than Macys', who cares? It's self-serving.

The brokerages use individual agent sales volume to rank the agent. What does that tell a consumer? Pretty much that the broker so ranked is making a lot of money. Is someone who does a ton of volume the best fit for you, ipso facto? Probably not, just using simple probability.

The not-so-subliminal message to lower-volume brokers is "Hey, get with the program or we'll give you crappy rankings." What if the broker is a new licensee learning the ropes? What if the broker is, say, a CPA who only sells properties for trusts? What if the broker is newly retired and just wants to stay a bit active?

In the Captain's view, top-down definition of ranking terms is anti-consumer. Redfin, Yelp, Google, and many others have shown that bottom-up ranking--user reviews--are more useful. The big firms need to get off this wagon and if they want reviews, seek them from the public. Present and former clients are a good source, but so are ex-clients who may have dumped the agent for whatever reason. Moreover, the brokerage itself needs to be reviewed, not just the agent.

I hope agents rebel and don't allow this to happen. It's neither in their best interest, nor in the consumers'. his afoot movement needs a big, fat boot.

Wednesday, February 12, 2014

The Howl of the Wounded Moose

I've got a den with a river view
Inman News published on Feb 11 an article on by a certified residential appraiser wondering why real estate brokers escaped blame over the housing-led financial crisis. He went on to write about the low entry bar to receiving a real estate broker's license  and how much more rigorous both education and training is for appraisers.

The wounded moose howled.

He received a few thoughtful comments, but by and large, they were the verbal equivalent of brokers exercising their Second Amendment rights. But it got me to thinking--what do lay people think? What kind of education and training should real estate brokers have?

The Colorado statute on broker licensing has an interesting preamble attached. I don't recall it word for word, but it says something to the effect that in representing buyers and sellers, real estate brokers are practicing law without a license. However, it goes on to say, the way real estate sales are being conducted doesn't seem to be particularly harmful, so the state won't require law licenses just yet for real estate brokers.

In other words, no harm, no foul.

Most buyers and sellers believe that a standard, MLS-developed real estate purchase agreement is a contract to buy and sell a house. That may be true in the abstract, but that's not what they really are. If you look at the language, penalties for not performing offer almost zero relief to either side. It's also designed to keep brokers out of court.

The reality is that it's primarily an earnest money agreement--who gets the earnest money if things fall apart and the centre cannot hold. And even fighting over that is a fool's game most of the time. For these reasons, new home builders have their lawyers create the contracts and don't use standard Realtor forms.

But back to the point. Should real estate brokers be required to have a bachelor's degree? An apprenticeship of sorts, as appraisers have to have? Should they have to have specialized training in finance?

It all gets down to the fact that despite the majority of real estate brokers being pretty much okay, there are a lot of bad actors out there, and there are enough of them that the public consistently gives brokers low esteem rankings. At the same time, the public consistently hires the bad ones along with the good ones.

I'm interested. What do you think?

Wounded moose howl, but what does everyone else say?

Wednesday, February 5, 2014

Pay No Attention to That Man Behind the Curtain

Here's all you need to know about the housing market for 2014: Nobody knows.

This factoid from Inman News caught my eye. Demand for purchase money mortgages is down 17% from a year ago. What does that mean?

Mmm, well, it means that demand for mortgages to buy a house are off. To which I hear a resounding echo of, "Oh."

Prognostications of the 2014 housing market are mostly cotton-candy upbeat. Most come from sources who are not exactly unbiased. One of my favorites--I forget where exactly I saw it--is that house prices rose last year more than at any time since 2007. That's good, because lots of owners formerly underwater can breathe a little. But the same article neglected to mention that pricing hasn't hit 2006 levels.

Gloom and Doomers are whispering "housing bubble" from the shadows. Spin and Grinners are shouting, "No it's not! from the rafters.

What's a poor prospective homebuyer supposed to do? Answer: Watch shows on HGTV and get yourself in the mood.

The country is in a recovery, we're told, but we're far from recovered. The jobs situation is looking up. Profits are up, but wait--the stock market's been tumbling. China's economy? No one sees behind the great wall. Emerging markets? The markets of the future, and they always will be. Except now, they account for half the world's economy. So, what's gonna happen?

At the risk of repeating myself, nobody knows. Don't forget, Denver was favored to beat Seattle in the Super Bowl.

The Captain's advice: Stay with the basics. Don't be pressured, but don't put things off. The house you want at the price you want is out there.

After all, the only ones who know are those who say they don't know.