You Just Wrote An Offer, What Happens Next?   

You just wrote and an offer, the seller accepted and you’re telling your friends you just bought your dream house.  (Search for homes here.)  You are super excited, but what happens now? hands The first thing that happens is your agent is going to make sure all the papers are correctly signed by all parties, then they or the other agent will send the contract to escrow who in turn assigns an escrow number.  This is called opening escrow.  Escrow is the neutral third party assigned the task of being the hub, through which all buyer and seller, lender and agent documents pass.  The escrow officer is the person in charge of your escrow.  Escrow is going to order a preliminary title report or “prelim,” along with all the other necessary reports as required by local ordinance or other government statute, including Home Owner Association (HOA) docs and any particular items requested by the lender.  Once open, escrow will send you a package that will also include the escrow instructions.  Escrow instructions will reiterate the terms of the agreement including address and names of the parties.

Assuming you are financing a portion of the purchase, you will be speaking with a lender and providing them an executed contract.  They will need your financials including W-2, tax returns, asset statements etc. and they will run your credit.  Truthfully, you have probably already done this since no offer is taken seriously today without 3 things: The proof of funds (evidence of down payment), preapproval from a reputable lender (preferably local) and the purchase contract.  As a result of recent changes in the lending world specifically as it relates to the Dodd- Frank legislation, there will be a 3 day period after you apply for the loan to look over the lender disclosures. Anytime the loan terms change substantially, the lender is required to re-disclose and another 3 day wait ensues.   This delays everything which is why you really need to sew up your loan decisions quickly.   Often times a buyer wants to shop for the best interest rate and they do this in the days immediately following their offer’s acceptance.  (Contact Tim for help here.)  Please note that while you should absolutely look for a lender who has competitive rates, finding a mortgage lender you trust is really the most important thing to seek in my opinion.  By all means, explore different companies, but remember time is of the essence and it will take the better part of 3 weeks to get a loan approval.  The longer you wait to begin the process, the longer it takes to get an approval.  Since the California Association of Realtors (C.A.R.) Residential Purchase agreement (R.P.A.) defaults to 21 days for due diligence, loan approval and appraisal (your investigation and loan contingency periods), you really don’t have the luxury to play the loan rate game.  Given this reality, I recommend you ask your agent for their favorite lender or lenders and see if you “click” with them.  More important than the interest rate on a given day from one lender to another, is whether you connect and develop trust the person you are dealing with.  Customer service and watching out for your best interest will always eclipse an 1/8 percentage point one way or another in my opinion.  Don’t get me wrong, we all want the very best rate but since rates are changing every day and sometimes several times a day, having someone you trust to have your back, is essential.  Give me customer service every time over a slightly better rate.  Getting a loan is hard enough already, hire a mortgage person who is going to help you; someone who you can meet face to face.  Seriously, you’ll thank me later.

While the escrow and lender are working behind the scenes on their stuff, you the buyer are also on the clock to do your due diligence.  Remember, the C.A.R. R.P.A.   provides for 17 days during which time you have to investigate all aspects of the home you are purchasing.  This is your contingency period, but it doesn’t go on indefinitely.  What’s that mean anyway?  Due diligence is your responsibility to investigate all aspects of the home you are purchasing.  This means, insurability, title, schools, taxes, neighborhood characteristics.  I showed a home last week where when we went outside, two monster dogs ran up to the fence and were snarling and barking so loud that we all took a step back, so we went back a second time a couple days later and the same thing happened.  My client passed on that home.  It’s impossible to know everything about a neighborhood or house when you buy it, but the 17 days afforded for investigation are there for a reason.  Do your research!  Included in all of this investigation, is the physical inspection.  I describe the physical inspection as our “first line of defense.” inspect What I mean is that there are many inspections you might want to have.   Mold, radon gas, roof, geological, sewer line, structural… but all that costs money and it adds up, so the first thing you do is hire a home inspector to give you a solid overview of the home you are buying.  If there is no sign of water intrusion, perhaps a mold test or roof inspection isn’t necessary.  Your home inspector is going to be able to give you an idea of the condition of the home you are buying and make suggestions if he or she senses further investigation is necessary.  Another practical note: many times an inspector will make a “further investigation” recommendation because they have to cover their tail.  So it’s important that you ask the inspector, “Is this a big deal?”  More often than not, the inspector will say something like, “This is a terrific home and if it were me, I probably wouldn’t worry about it, but I always recommend that if you’re concerned, you should have a detailed inspection by… a plumber, or engineer etc.”  In other words, he’s saying he wouldn’t worry about it so unless you’re worried, don’t worry.

After the inspector issues their report, there are undoubtedly going to be things that need correction.  However, some may be upgrades to new standards that weren’t in effect when the homes was built, while others may be cosmetic.  I always tell my clients that we start with “Health and safety” issues first.  It’s not reasonable to ask a seller of a 40 year old home, to bring it up to the latest codes if not required by law.  Examples of code changes that are required would be, garage door sensors for child safety, CO detectors, smoke detectors and water heater strapping.  As a buyer you can ask for anything you want but you shouldn’t get your hopes up that the seller is going to make your home like a new one.  Measure your expectations and put yourself in the seller’s shoes.  As a new homeowner there are going to be things you are going to want to update and upgrade.  This is part of the joy of owning a home.

One thing I tell my clients is that there are two negotiations: the first is price and terms: what’s the price, how much down payment, when do we close, what’s included?  The second negotiation is the “Request for Repairs,” and this is often the most contentious.  Typically sellers are resistant to fix things after they’ve agreed to a price especially if they’ve had to come off their asking price to make the deal.  One of the comments I hear a lot from sellers is, “I lived with it for all these years, so can they, it’s not a new house.”  Can’t really blame them for that attitude, but this is why I recommend health and safety first.  It’s equally hard to blame a buyer for asking for an unsafe situation to be rectified.  After health and safety comes things that should be working.  Today I was on an inspection where the gas oven didn’t ignite.  It’s a pretty safe bet that the seller is going to agree to fix the oven.  The same would be true had it been the A/C, heat, windows, garage door etc., etc.  Problems often arise when the inspector notes something like this: “The roof is 25 years old and with a life expectancy of 25-30 years you should expect you’re going to have to re-paper or re-roof in a few years.”  However, when there’s no evidence it’s ever leaked, this can be a tough sell to get the seller to agree to pay for new roof.  Same comes up on water heaters and A/C compressors.  They don’t go forever and eventually they’ll need replacement, but when there’s nothing wrong now, how can the seller be responsible or a future problem or repair?

How does a buyer protect themselves then, from a problem in the future?  Sometimes a seller will acknowledge a certain likelihood and offer a credit or reduce the price a little.  But this is why the second negotiation can be so difficult, sellers really aren’t that interested in what happens after they sell.  One possible solution is ask for a Home Protection Policy (HPP) in your offer.  There are various degrees or features of these policies which you should research, but in general the HPP will help offset many unexpected expenses in the future.  Another note is that they are renewable so you can actually keep you plan in place many years after you originally purchased.  It’s a type of insurance and it’s worth exploring especially if you purchased an older home.

Once the request for repair is done, you’ve verified insurability (can it be insured and for how much?), HOA docs, title, neighborhood noise and whatever else you can think of, it’s time to lift your contingencies.  This is a big deal but it an inevitability if a transaction is going to go through to fruition.  Lifting contingencies is a big deal because until you “lift,” you can always withdraw cancel, quit and still get most if not all of your deposit back.  You are always supposed to have a reason when you cancel but the point I’m making is that you can cancel and usually not lose your deposit.  Once you lift your contingencies however, your money is on the table.  Cancel after you lift and you will likely lose most or all of your deposit.  On a $700,000 home that can be up to $21,000.  3% is the maximum “Liquidated Damages” allowable in California, so your earnest money deposit (EMD) is typically 3% of the purchase price because the seller wants you to have the maximum amount of “skin in the game” when you buy their home.  You can’t get hit with owing the total purchase if you quit, but 3% is still serious business.

Once you’ve made your offer, had it accepted, opened escrow, reviewed all the documents, done your inspection and due diligence, negotiated your request for repairs, obtained your loan approval and lifted your contingencies, all you have to do now is plan your move and await your loan documents.  Once in escrow, your loan documents are the last step between you and your new home.  Sign them, wire in your down payment and wait for the lender to “fund” your loan.  After your loan funds, the title company will record the deed in your name.  That’s when you get the call from your agent: “Congratulations, you just bought a home.”  And that really is music to the ears, isn’t it?

Posted in Home Buying, Inspection, Real Estate | Tagged , , , | 1 Comment

When The Economy Changes, What Happens To Real Estate?

When the economy changes, naturally the value of real estate is affected.  But how is it affected and how quickly does the change register?  By all measures the national economy is improving.  Consumers are spending more money, the declining price of oil means there is more available money in everyone’s pocket than there was just a few months ago pump and lending is a little looser than it was.  The GDP (Gross Domestic Product) or the measure of how much the economy is growing, is on the rise and more people are employed.  Real estate, like every other aspect of the U.S. economy should be improving too… but is it?  And if it is, when do we know if it is?

The obvious answer is that real estate must be going up in value if the economy is improving. (Search for homes here)  Better job security leads to more people choosing to purchasing a home over renting and more people are selling and moving up.  More people purchasing means greater demand and as demand increases on any good or service, prices rise unless supply rises at the same pace.  With real estate, new supply is limited by the number of sellers at any given time, particularly in areas where buildable land is in short supply like Southern California.  When there is distress in the economy like we had, people are often forced to sell as they move in search of employment and when personal finances dictate they must sell.  This is what happens in a down market: the number of sellers increase but demand is slack and can’t keep up with the supply so prices drop.  When times are better, selling is more by choice; the desire for new digs, a bigger place, a different layout, a better neighborhood.  With increasing prices comes increased mobility as the afore mentioned challenges resolve themselves.  This should help boost supply but simultaneously it boosts demand.

The improving economy is allowing more people to move.  Fewer homes are under water and employers have begun paying to bring in new employees, so for the first time in years corporate relocation is increasing.  Rates are at historical lows so affordability is good even after the uptick in values in 2013.  Moreover, with arrival (finally) of the Millennial generation of first time buyers, there exists an environment where real estate should be transacting at apace not seen in years.  All this adds up to increased liquidity of real estate (because it can be transacted more easily) which should in turn lead to higher prices.  What’s throwing a wrench into the works is that buyers are resisting this notion, holding on to what was seen as softness in the market this past fall.  This leaves us with a tug of war; buyers want lower prices, sellers want the prices they had a year ago.

In December I listed a beautiful home in my neighborhood and it sold quickly for full price.  That buyer recognized the value.  Last week I listed another, smaller place in the same neighborhood for $769,000.  11Most would agree it’s one of the nicest properties under $800K in our area.  Within 4 days I had 3 offers, yet each was 4% off ask.  Strange don’t you think?  I mean a brand new listing with multiple offers in week one should mean a sales price at or above ask.  None are willing to up their offer to a price close enough to asking price for my seller to agree.  How can this be?  It’s the tug of war.  The buyers are looking at comps from the fall when the market was softer as is always the case for fall, while sellers are looking forward to spring.  Spring is the buying/selling season in Southern California.  Sellers normally achieve their best appreciation this time of year.  Now the question becomes, “Who’s going to win the tug of war?”

The latest Case Shiller numbers show a tangible increase in home values at +4.5% year over year for this past month.  This is a pretty big number when looking back just one month prior when that number was in negative territory, suggesting a market in decline.   Equally if not more interesting is the seasonal component that these figures were from December, traditionally a very slow time for sales.  In other words, the market did a 180 degree turn around in December.

But hold on, does real estate actually appreciate, “Just like that?” Or does it take time to show up in our consciousness?

Because every home is different, there are many metrics that people look to, to evaluate real estate values.  An appraiser will look at backward data, recently sold homes along with a pending sale or two, to establish to a lender whether a home’s agreed sales price is justified.  A buyer will look at these same comps (Comparable Sales) to determine how much to write an offer.  The key today I believe is to look back farther than this past soft fall, all the way back to spring.  Here I believe, is where you will find the real value of property today.  (Contact Tim to get a free property assessment on your home.)  In other words I’m suggesting fall was the exception, not the rule.  ISIS, Ukraine, Ebola, pick your distraction but it’s apparent prices dipped in the fall but that they’ve already bounced back.  If you bought in fall, you got an especially good deal.  But that was yesterday, not tomorrow.

I’m no Svengali, though I play one on this blog, but with everything in the economy improving and home supply still very tight, I believe prices are going to rise.  The tug of war is happening, but I now predict the sellers are going to win this time around.  There’s just too much demand for the limited supply to satisfy hungry home shoppers.  To me it’s not so much a question of when, they have, rather how much more?  A month ago I didn’t think this was possible especially in light of our local economics where our largest employer announced major layoffs and restructuring.  The best I’d hoped for was a flat spring (no further dip) where the new listings from laid off people would come in late spring as school gets out and that would mitigate the pressure on prices that the improving economy would bring.  While I still think that is still probably the case, what I didn’t anticipate was that we would reclaim our fall drop in values and get back to last spring prices before we flatten out.  And that’s what I believe is happening.  Buyers who recognize this are going to find that they have to pay for quality.  This is the trick: recognizing value and making your offer.  If you snooze, you’ll lose, the past is past and tomorrow is here. Now the question is do you believe me?

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Real Estate And Our Responsibility To Our Veterans

Last week I had a situation that got me really thinking about our returning Vets and what we as property owners and Realtors have to do.  I’ve got this lease listing in Thousand Oaks (search for listings here) which means I’m charged with helping the owners find quality tenant.  One day I get a call from an agent and the conversation starts like this: “I don’t want to waste anyone’s time, but I have a tenant looking for a home: He has a dog, a wife and two kids but his credit is terrible.  He’s got a new job working for the Feds in West LA and can’t find a home.  By the way, he served two tours in Afghanistan.  veteran homeIs there any way your landlord might consider them?  The wife and kids are living with her family 5 hours away and no one will rent them a place.  They’re desperate.”

My listing is gorgeous with wood floors and in amazing condition and as the landlord’s rep, I need to find a great tenant for them.  The first thing I heard the agent say was: dog, then bad credit, both things that often dissuade a landlord from considering the tenant candidate and clearly this was what was happening to this family.  The thing that stood out however was his military service.  So I say, “Send it over, I’ll look.”  She thanks me and that’s it.  When I get the application it came with a nice letter of explanation.  Turns out the candidate had lost his analyst job and was out of work for 6 months.  With two kids and a wife, he did what he had to, to survive but his credit was badly damaged as a result.  In reading his application I see his contract of employment showed good income.  I see that there is a letter from VA Benefits stating he gets a monthly payment for disability from injuries sustained at war.  I gulp.  I suddenly I find myself looking at an application from a full blown American hero that is separated from his family because no one stateside is going out on a limb to help.  I think, “I want to help, but the credit…”

Whenever I get an application for rent I verify employment, call references which are always good; heck I’m sure Charles Manson would give me the name of a reference that would say glowing things about him… ultimately I’ll make a recommendation to the landlord.  So I begin my due diligence and check up on him.  Paid rent on time.  House was left immaculate, the previous landlord says.  Yes the employer says, he works here and makes what he said.  I call a Lt. Col. (ret.) listed as a reference; he says “Fine young man, a family man and a fine soldier.”  Special Forces he says.  But that credit…  At this point I don’t have any other applicants so I ask the landlord, would he consider such an applicant.  They say they’ll get back to me and then, it happens:  I get a second app.  The new prospective tenant has much better credit and makes twice as much.  I have no choice, I have to send the landlord the new application.

In my job as a real estate broker, I am only the middle man.  I am not a principle, owner or tenant.  I’m neither the buyer nor seller, just the facilitator in the middle.  What influence can I really have when it comes to what offer to purchase to accept, what tenant to rent to?  I feel for our veteran but it’s not up to me, it’s not my house.  I could have accepted this argument and left it alone and the landlord just chooses.  But I don’t feel right about this and feel I’ve got to do something but it’s not my call, not my house… what to do?  I call the landlord, he says “Tim what would you do?”  And I told him honestly, “Every tenant is a bit of a gamble.  You never really know how they’ll be and you sometimes just have to choose.” “OK, Tim, so choose,” my landlord says to me.  He senses I’m favoring the Vet.  “I can’t be the one to choose, but let’s go over the apps.  The second one has better credit and has more income so they are the stronger tenant candidate,” I say.  “However, I can’t help but feel this vet, this war hero, needs a break and I have a soft spot for vets,” I say to him.  What happened next this was amazing.  My landlord says, “I was in the Taiwan Navy myself and feel the same way.  Rent it to them.”  Wow!  What happened was my landlord was thinking as I was but just needed me, the real estate professional, to reinforce and validate his thoughts.  Had I not said this and pushed the other more obvious applicant instead, he would have rented it to them.

The point I’d like to make, is that we have to give our Veterans, the benefit of the doubt.  We need to extend a hand even when they might not fit into the “box” we want.  As Realtors, we need to emphasize to landlords and sellers, that our Vets bring something to the table that the average citizen does not and that’s sacrifice and that counts for something.  As Realtors, we need to pull the emotional card when we submit an offer with VA financing.  As listing agents receiving offers from buyers using VA financing, we need to let our sellers know that VA financing is just as good as any other; not more difficult and the buyers while maybe light on down payment, are no less qualified to buy.  Did you know for example that zero down VA financing can go up to the high balance conforming loan amount for that given county?  In LA that enables a Vet to buy with no money down, a home in excess of $625,000 and with some money down, as high as $1,000,000? (Contact Tim for a great lender referral).  Often times Vets are competing for lower priced homes; competing with investors and other buyers with substantial down payments.  In multiple offer situations service to our country should be worth more than a large down payment.  As sellers I get it, it’s about the money.  It’s your biggest investment and business is business.  I know as Realtors, we can’t push our sellers to do what they don’t want to nor should we.  It’s not our house.  Our responsibility, our fiduciary duty, is to our client.  But sometimes people just need a little help to see things from a different perspective.  Sometimes, just like my landlord, a client just wants to know that doing the noble thing is sound business.  Sometimes the Realtor just has to say, renting and selling to Vets is good business.

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Case Shiller at the end of 2014

Today’s Case Shiller numbers show a mixed bag of data.  There are some very strong indicators that the market is ready to break out; 8 cities were up over last month and the average annual appreciation was 4.5%.  CaseShillerOctoberMoreover the monthly increase of .8% puts the average over the next 12 months at nearly 10%.  These are pretty exciting figures.  That said, the sales declines (NAR’s October pending sales were slowed down for the month) within the context of historically low interest rates, suggest something a bit less optimistic.  So how is it our GDP was up 5% for the 3rd quarter yet home sales are not following along?

We have several factors at work affecting home sales and home value appreciation.  First, while it is true the economy appears to be improving rapidly, the Federal Reserve has chosen to keep rates down for the foreseeable future.  Why?  The likely answer is that while the economy is growing, inflation is not and most specifically wage inflation.  Without income growth, homes cannot appreciate.  Secondly available inventory is low and is restricting buying activity.  Ask any home lender/mortgage broker and they will tell you they have files filled with preapproval letters but their clients cannot find homes to buy.  Further, with new home construction only modestly picking up, the availability of new homes is contributing rather than easing the low inventory concern (search available inventory here).  New homes are often a catalyst for existing homeowners to “sell-to-buy.”  The dearth of new homes, especially in “In town” locations most popular with the ever growing Millennial demographic buyer pool, is further exacerbating the sense that there is nothing to buy.  Without adequate inventory, sales cannot accelerate.  And don’t forget that the participation of Wall Street in the residential home rental market (ie: Blackstone) means that 100,000’s of homes that could be up for sale, are not, rather they are locked up as rentals in REIT’s (Real Estate Investment Trusts).  REIT’s cannot sell property as easily as you or I, since they have restrictions placed on them within the rules to qualify as a REIT.

So where does that leave us and what should we expect going forward in 2015?  More of the same is what I expect.  I feel there is a tension between buyers and sellers favoring neither and leaving both frustrated.  Sellers want their appreciation and in fact many need it as there are still a lot of homes at or just under water, owing more than they can sell for after costs and commissions.  Buyers for their part, want nice properties and will pay a premium for these, but these are in ever short supply.  KitchenThis in part can be attributed to the lack of disposable income to be used on home improvement, so many homes currently on the market have perhaps been a little more neglected over the past 7 years than they might otherwise have been, making them less desirable to prospective buyers.  As the economy improves so will the stock prices of home improvement companies Home Depot and Lowes and suppliers like Masco.  Interestingly this could mean better improved homes coming up for sale or it could mean fewer sellers as more people opt to fix their existing home rather than sell and try to buy from a very limited inventory of available homes.  This in turn will continue the trend of tight inventory and slower sales but hopefully fuel a little appreciation to motivate would be sellers to list and sell.  One last thought, a reminder really, that real estate is always local.  What happens in Park City, Utah may have little bearing on Palm Springs and what’s happening in Brentwood, Ca little effect on Thousand Oaks where a leading employer is downsizing.

Lastly I would suggest that if you are in the market to buy or sell, finding a local area, full time, experienced real estate professional will never be more important than it is today (click here to contact Tim).  Even with all the online information, buyers and seller are best served by someone who can discern value; recognize opportunity, counsel accordingly and manage the process to a successful conclusion.  The more confusing the marketplace, the more important your choice of Realtor becomes.

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Santa Wants a One Story Home

In honor of the season, I reworked the lyrics to this holiday classic.  Click on the picture to check out the listing and by all means, sing along!

FrontOh you better watch out

You better not cry

He’s selling his place

I’m telling you why

Santa wants a one story home.

 

He’s counted the steps

At his home at the poleDSC_0040

He’s tired of climbing

One level’s his goal

Santa wants a one story home.

 

 

He knows upstairs he’s sleeping

But his knees they always ache

The years of climbing chimneys

No more stairs for goodness sake!

 

 

Front DoorOh you better watch out

You better not cry

He’s selling his place

I’m telling you why

Santa wants a one story home

 

Santa wants a one story home… who doesn’t?

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What’s It Really Like To Be A Realtor?

 What’s it like to be a Realtor?  I suppose a question like this is best answered: It depends who you ask. Like anything, there are those who are successful and those who are not.  A real estate agent is an entrepreneur who wakes up every morning unemployed.  There’s no store front, there’s no brand other than what you make (you can see my website here), no salary, no 401K and no vested stock options. You can’t get fired and you don’t have to go to work if you don’t want to.  But then you won’t make any money either.  It’s the Wild West, it’s a precipice; it’s sky diving without a parachute.  It’s not for the weak of will or heart and like every sales position, it’s not for everyone, even though just about everyone tries.  Makes you wonder, “Who’s crazy enough to think this is a career?”

self-confidence3One day my son was speaking to my mom after landing his first job selling TV’s for Sears over the summer.  He said, “Nana, being a sales person is easy, you just talk to people and help them find what they’re looking for.”  My mom disagreed, she said, “Adam, being able to speak with people and be comfortable talking to strangers, is a skill and a gift.  Not everyone can do it.”  My son didn’t see it.  “Anyone can do it, it’s easy.  You just talk to them.”   Ah from the mouths of babes.  What my mom understood but my fearless young adult son did not, is that selling is a skill and not everyone is good at it or cut out for it.  It’s not always easy to understand what people need, what they want and how best to help them.  This is especially true when your livelihood is dependent on you selling them something.  This is why so many people fear a salesperson is more concerned about earning a commission, than helping them.  Staying true to the belief that you can only be your best when you are helping others can’t just be lip service, it has to be real and sincere.  Another pitfall is that salespeople need to be “up” all the time, but it’s not easy to be “up” all the time, especially when you haven’t closed enough deals and  money is tight.  All sales is tough racket but that’s why sales people in every industry are paid well.  It’s high risk and high reward and real estate sales are especially difficult.  You just never know where the next buyer or seller will come from.

It’s said in real estate that 90% of the money is made by 10% of the agents.  This means that 90% of the agents are fighting for a mere 10% of the commissions.  If you’re in the 10%, real estate is a good business and if you’re in the top 5% it’s a great business, but most people starve.  This is why you find so many part time real estate agents; they need a real job to pay their bills.  You can’t blame people for trying out real estate.  Tim and the 7 seriesRealtors drive nice cars, it’s not that hard to get a real estate license, you don’t need a lot of money to get started and those big commissions!  Realtors drive nice cars it is true, especially in Los Angeles, it’s really a basic tool of the job.   We’ve all heard the phrase, “Dress for Success” and to a Realtor a car is an extension of that theme.  Most people will tell me that they wouldn’t hire a Realtor just because of the car they drive.  Yet, a car is an easy way to prejudge a Realtor’s success and when it comes to your most important financial decision and investment, hiring a successful agent is essential.  With so many amateurs with real estate licenses (think of the 90/10 rule) appearance really does matter.  Is this superficial?  Yes.  Is it still important?  Absolutely.  A real estate agent has to be the first or second agent thought of; being third means you never get the call.

Early this year I had a buyer in escrow on a $900,000 property.  He had read in the local weekly paper that I sold $26M in real estate last year.  He says, “Is that true?”  I said, “Yes it was.”  He said “I want your job.  I did the math and $26M times 3% means you made…”  I stopped him right there.  “That’s just not how it works.”  Why?  Because I don’t get all that.  I’ve got to spend literally tens of thousands marketing myself and my listings.  And even though I am a broker, I still work under a broker and that broker takes a cut.  So does the Company and sometimes there are referral fees due.  What made the conversation so ironic was that we had been working together for over a year.  We’d written some offers and even been in escrow before this one.  Then when it came time to put his money up and lift his contingencies, 4 days before close, he called to tell me to cancel.  As I hung up I said to him, “So, you still want my job?”  Nice homes and sometimes not so nice homes; fancy cars, an occasional suit and tie but usually casual dress.  It all sounds pretty good or would if not for the fact that you work for free until you actually close something.  That’s right, for free.  No retainer, no stipend, no per diem, nada.

On a typical day I’m working on marketing – who to reach out to, what mail pieces do I mail…  I write letters to clients, make calls, write in my blog… A good day is a listing opportunity.  A great day is a sale and a “Woo-Hoo” day, a closing.  Listings are the business.  Think about it, in a weekend I can work with 2 maybe 3 buyers in a day if each is only looking at a few homes.  How many listings can I have on any given weekend… 5, 10, a 100?  So it’s all about listings.  When I meet with a prospective seller, I have already started assessing how to help them from our initial phone conversation and now in more depth, in person.  I have to rest their fears, understand their motivation and goals and I have to be able to do this within an hour interaction.  I pride myself on being able to listen and know how best to advise them.  I know my market as well as any and better than most.  Every seller is different.  Many times I am faced with this situation:  Tell a seller what they want to hear and get the listing or tell them what I think they need to know, understanding that this honesty could cost me the listing.  “Obvious” you say, but not as easy as it sounds.  Imagine saying this: “Mr. & Mrs. Seller, I understand what you need from the sale of this home to buy your new home: you need me to sell your home for 10% above the market.”  That doesn’t go over real well.  But over pricing a listing could mean an agent is going to spend a bunch of money and not sell, eventually losing the listing to someone else who undoubtedly gets the seller to list for a more realistic price.  The prevailing opinion is, “Take the listing and you can always get the seller to reduce later; after all it’s their home…”   It takes a lot of savvy to be able to sit there across the table across from a would-be seller and set them straight, knowing that a competitor is almost certainly going to pander to them and offer to list the home at whatever it takes to get the seller to sign.  But after so many years of seeing what results from that approach, I’ve learned I just have to stand tall and come correct, (contact me here).  If that doesn’t work, you have to able able to live with yourself and hope you’ve demonstrated you’re still the agent to hire and if not, that you’ll be the agent they call when the home doesn’t sell and the listing expires.

Real estate coaches teach, the real estate business is not so much about the houses or marketing, it’s all about prospecting.  Getting a client is the first and most difficult part of every day I’m a Realtor.  Some agents door knock; they’re always around the neighborhood, saying “hi” and handing out pads or magnets.  This is a very effective type of marketing.  Other agents build special relationships with past clients.  They know your birthday, they send your kid’s birthday cards, and invite you to poetry readings and bunko games, wine tasting.  They are like family and who better to trust?

Me, I approach real estate more like an account or attorney.  It’s a professional services business and that’s how I approach it.  I’ve been doing this a long time and most of my business comes from referrals and past clients though do I specialize in a few neighborhoods, so that makes me the area expert.  Of course mine is just one approach, I just happen to think it the best.  I’m friends with my clients, there when they need me, but they know when it comes to real estate I’m all business and that’s why they hire me.

It’s funny really, I see lots of homes, lots of décor and get to drive a cool car; this is the persona of a Realtor.  Being a Realtor is about helping people, but it’s also about understanding the numbers; knowing how to negotiate successfully, how market and sell property, how to manage the process and after all that, getting out there prospecting for future business.  That’s the life of this Realtor.  It’s a tough racket my father in law used to say.  It’s rewarding, it’s terrifying, but I wouldn‘t trade it for anything… this week anyway.

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Market Update: The Conejo Valley and Beyond

Wow, where to start.  As is with communities across our great land, when a large employer announces substantive changes to the number of people they are going to employ in that area, every aspect of the local economy is affected.  Such is the case here, along the Los Angeles/Ventura County line.  When rumors began circulating that Amgen, the area’s largest employer, was preparing to lay off a large part of their workforce, you could almost hear the gears of the local economy, grinding to a halt.  amgen for sale cropWhat would the impact be?  Home prices would have to come down as all those laid off employees scramble to list and sell their homes as they’re forced to relocate to other biotech hubs like Boston and San Francisco, right?  The sudden shadow that hung over our valley seemed to reach every corner and the attitude of home buyers moved from optimistic as inventory was increasing and prices appreciation stabilizing, to trepidatious and cautious.

At the time of the rumors, I focused on the math: how many people would actually be laid off locally, that would have to sell and move to find employment?  The number kept running around 1,000.  Then right when we were preparing for the worst, Amgen’s CEO announced an additional 1,100 people would lose their jobs and the market reacted as one might expect, it shut down right?  Wrong.  It is true, the market has softened, traffic at open houses slowed and the number of closed sales declined – somewhat.  In fact given the time of year and the overall health of the real estate market nationally, we actually don’t seem all that different and are simply mirroring everyone else.  We are not substantially slower, the sky has not fallen and if you ask my buyers, there’s still not very much on the market.  So what gives, because that makes no sense at all?

Tile Door Detail  One thing we can all agree on is that real estate is local, for more information click here.  But to understand locally we must first look at the broader market to better frame our discussion.  Nationally the market is slowing and appreciation, abating.  It’s slowing because 2013 brought broad based and rapid property price appreciation as the attitude shifted from, “We’ll never see homes appreciate again,” to, “I think we can all agree we have already bounced off the bottom.”  So the appreciation we experienced was a combination of large swaths of investors, be it “Mom and Pops” or institutional investors like Blackrock buying cheap homes and the herd mentality that “It must be safe to buy now.” This continued until June 2013 when Federal Reserve Chairperson Janet Yellen, announced the end of QE (Quantitative Easing) in the form of the Fed’s bond buying.  Interest rates jumped nearly a full percentage point and the market cooled.  There would be no “irrational exuberance” here, to borrow a phrase from Ms. Yellen’s predecessor Alan Greenspan.  She put the brakes on the housing recovery and it worked.  The market cooled, but it did not halt.  In fact as the economy and consumer sentiment improved, property values and sales gently increased into 2014.  Something however was missing.  Traditional first time buyers (mid 20’s to early 30’s) in many parts of the country had been priced out of the market due to 2013’s rapid appreciation.  Moreover, many of the Millennial’s were and are, still living in their parent’s basements.  Household formation, the key component of first time home ownership, was not happening at the pace it historically does.  In his article yesterday, syndicated columnist Lew Sichelman cites NAR statistics that less than 30% of 2014 buyers are first time buyers.  The historical average he states is 40%.  Without first time buyers buying the fixer/older homes he reasons, the market cannot achieve its full potential.  He goes on to attribute this to the lack of move up buyers due to a shortage of new homes, often the catalyst for existing homeowners to sell: they want a new home.  And while I agree with this idea, it doesn’t go far enough.

The reasons these first time buyers aren’t buying homes has as much to do with a lack of income growth as it does to available inventory.  Moreover, analysts love to point to the fact that our young would-be buyers are saddled with student loan debt making qualifying more difficult.  Add to this tighter lending standards in general, despite near historical low interest rates and a shift in where this demographic wants to live (ie: close in, not out in the burbs somewhere) and you get a buying foundation akin to sand.  The lower end and first time buyer market is the foundation for all property values and appreciation, without them, the whole market is shaky.  This means that typical first time buyer-fixer type homes are not only not appreciating, they may even be dropping.  Thus inventory declines as sellers decide to wait for a higher prices or in many cases wait because they are still upside down having not yet climbed out of the hole from the housing crash and simply cannot sell.  This in turn has changed what first time buyers look like.  First time buyers are not late 20 and early 30 year olds as they once were at all, they are 35-40 with 2 small kids coming much later in life than in years past and they are dual income with no time nor interest in fixing a home up.  So instead of buying older fixers where they can use their sweat equity to build equity, first time buyers are buying turnkey properties and these properties are far and few between as compared with older properties that need a little TLC.  First time buyers look different and act different and this has changed the dynamic of homeownership.  The impact of this is that we should expect prices to remain flat until such time as incomes grow, household formation gets back on track and builders start building more homes to motivate more homeowners to sell.

So back to our local market… It is true that there is great unease amongst buyers and we have already experienced a 5% drop in values since summer. But there are still buyers out there.  In fact there are lots of them, even here where we are bracing for substantive job losses.  How do I know?  Ask a lender if they have any preapproval letters out and they will tell you they have files filled with them, but that those buyers just aren’t buying.  I held an open house a couple of weekends ago and I had 4 noncontigent buyers come into my open house, none of whom worked for Amgen but all of them in the market for a home.

So what does this all mean?  The way I see it, there will be pressure on prices until all those who were laid off either decide to sell or stay.  I expect this to become clearer in the spring.  In fact I expect that spring will bring a lot of new listings to the market place and this will offset the typical spring “bump” we get in prices.  But that also means that there may be no better time to buy than , click here to search for homes.  It means as a buyer, you want to be a little more aggressive on your offers and if you’re a seller, a little more open to negotiate.  Herein lies the key to navigating this market: be a participant, not an idle bystander.  If you are a seller today, don’t wait until spring because you will have more competition and they’ll have the benefit of seeing how long you’ve sat and price their home accordingly.  If you are a buyer, don’t be afraid to make your deal today if you find a home you want.  One thing is certain, the future is never predictable whereas the present is, well, the present.

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