Thursday, March 15, 2007

Market Expectations...

"Wait. You're asking HOW much?????"

The Portland real estate market is in an interesting transition. Sellers’ expectations are still a little too high, Buyers’ expectations are a little too low. It’s neither the white-hot market of the last four years, nor is it anywhere close to a fire sale. We’re heading toward equilibrium; we’re not quite there yet.

Most fundamentals are good: Strong local economy, low unemployment, more people moving into the area than out, excellent interest rates. Both average and median prices continue their year over year increase, and sales are inching closer to those of a year ago: down only 7.5% in February when we’ve seen double digit decreases since last June.

On the other hand, inventories are high: a lot of new construction as a residual of the building frenzy (nearly a third of active listings), condo conversions (nearly three times more condos on the market than a year ago), sellers worried if they don’t sell now their value will go down.

And demand is down: buyers thinking that better values are coming, marginal buyers being forced out of the market because of the crack down on sub-prime lending.

Note the psychological components:

Two years ago buyers were afraid if they didn’t buy NOW!, they’d lose out, unleashing a buying frenzy; some sellers were reluctant to list, afraid that if they sold their home too soon they wouldn’t be able to find a replacement.

Now buyers are afraid that if they DO buy, they’ll…lose out; sellers are listing quickly, afraid they’ll get less if they wait.

OK. Everyone take a deeeeeeeeeeeeeep breath. The facts are these: homes properly prepared and reasonably priced are still selling, and selling well. Homes that are not, are not. Diligent buyers with attentive agents are finding what they want, at reasonable prices.

We’re heading into the active Spring season. Honest:

It’s a good time to buy. It’s a good time to sell.

Monday, March 12, 2007

Home Buying Process (5) ... Really! Sales Agreement

7. FINALLY! OK. I hired a Realtor, been pre-approved by a lender, and found a home I’d like to buy. We’re about there, right?


8. Be serious!


There’s a good case to be made that from here on out is where the agent earns his or her commission. Now that you’ve found a home you’d like to purchase, the next step is to apply your interests to a clear, comprehensive – and ultimately acceptable – purchase and sale agreement. The standard Oregon form is seven pages, small print, and note it’s a binding contract. I assume you’ve read it through to at least get a basic understanding of what you’ll be signing?

9. Ummmmmmm…

If your agent doesn’t give you a sample copy when you first meet, ask for one! Read it through, again to get the basics. If you have any serious questions, consult an attorney; that’s something your agent usually is not.

Very basically, the main negotiating points in a sales agreement are these:

Price. You can offer whatever price you want and the offer must by law be presented to the seller. That said, though we’re in a buyer’s market, there is no fire sale. The object is to come to an agreed price – remember, the actual value of a property is the amount a seller is willing to accept and a buyer willing to pay – so offering twenty percent below list is likely to be rejected outright. (The seller has three options: accept, counter, or reject.) Though it’s ultimately your decision, listen to your Realtor! He or she will have done a market analysis and will know how to get to the price you’re comfortable paying.

Earnest Money. This is the amount deposited into escrow at the time the contract is agreed upon, later to be included as part of the down payment. It shows two things to a seller: your financial stability, and how serious you are regarding the purchase of the property. Since this is the sole remedy to the seller for a buyer having breached the terms of the contract, it’s highly unlikely, say, $1000 will be accepted on a $400,000 home. Given there are several buyer-protection clauses in the contract that protect it, usually the higher the amount the more seriously the offer will be considered.

Financial considerations. Again, you must have a pre-approval letter from a qualified mortgage broker. Beyond that, finances are what they are: 20% or more down is a sign of stability, 100% loans less so, especially with lenders tightening qualifications. That doesn’t mean they aren’t accepted – they are, all the time – but will receive more scrutiny, which may mean offering better terms in other areas. [Note you are not obligated to stick entirely to the terms written in the contract.]

Contingencies. If you have to sell your current home to qualify for buying the one on which you’re making an offer, it’s much more likely to be considered than it was a year ago, but if it’s accepted it’s usually put in a ‘bumpable’ status. That means the home stays on the market; if another suitable offer is received you’ll have a set amount of time to remove the contingency or terminate the offer (you get your earnest money back). Usually best to get at least an offer on your existing home first, or there are many loan products on the market that can help you carry both. The only caution: with the days on the market over a month longer than a year ago, there exists the possibility you’ll end up with two mortgages.

Closing and possession dates. You can make your offer much more attractive – often to the point of canceling objections to a low price – if you can accommodate the needs of the seller; your agent will have found those out before the offer is written. Sellers whose homes have been on the market for several months and are already vacant love quick closing dates; some sellers need time to pack and move, or are waiting for a home they’re building to complete.On the other hand if you have needs that have to be met, that can lead to accommodations elsewhere.

Ask your agent!

10. What about inspections? Disclosures? Right of revocation?

Next installment…

11. Oh, good. Can we have that in less than, say, a month?


12. What's with the picture?

The door to your dream home.

13. ...

OK. I just like the colors.

Wednesday, March 7, 2007

Buyous Interruptus

5. So who was it?

Shannon. Love my girls! I’d sent her a check for some software she’d sent me – she works for Microsoft – and…her dog ate it. Yeti is the innocent looking dog you see to the left.

Not only that, she’d loaned a friend some money. The friend wrote a check to pay her back…Yeti ate that, too. Her friend wrote a second check.

Yep. That one, too.

Yeti is the same dog who learned to roll down my car’s back window, the better to lean out the window and bark at trucks. He’s also the only dog I know that, no matter who’s singing it and no matter what key, howls at “Me and Bobby McGee.”

I could write a book on Yeti…

6. How about writing instead about the Home Buying Process?

As soon as I stop laughing...

UPDATE: Shan emailed to remind me: The checks were in her wallet which was in her purse. He skipped over all the receipts, went straight for the checks. Reminds me of a post I need to write on predatory lenders...

Home Buying Process (5) ... Almost

1. Can we please get back to Home Buying? I’m about ready to write an offer.

Do you mind if I digress a little first?

2. …Unlike what you’ve been doing the last month?

I’ll take that as an “Of course I don’t mind.”

Kendra Hogue, editor of The Oregonian’s Sunday Homes and Rentals section, I’m sure is an exceedingly nice person. Realtors, Builders and Macy’s are The Oregonian’s last consistent revenue streams, and keeping each happy is a priority. So I’m sure it’s with that intent that she said this Sunday:

…For those of you who haven’t purchased a home before, “hiring” a Realtor to help locate a house costs you nothing.

That bothers me on several different levels:

First, it’s not entirely true. Yes, commissions are taken out of the seller’s net, and the amount of the commission is negotiated between the listing agent and the seller. But that commission comes from the funds provided by…the buyer. That’s who ultimately writes the check. The commission is factored into the home price.

Second, some of the best agents are now using an Exclusive Buyer Service Agreement, which not only protects the agent but assures the buyer of the very best representation. It states clearly the buyer is responsible for a set percentage or flat amount upon a successful sale, less any amount received from the seller. Using Kendra’s assumption, a buyer could legitimately ask “Wait…I thought you were free.”

Finally, ‘free’, practically and by definition, diminishes value. As noted elsewhere, a buyer’s agent is every bit as valuable to a buyer as a seller’s agent is to a seller. ‘Free’ implies the exchange of one warm body for another – as long as both are licensed – equals like representation. That’s emphatically not true.

Buyers: Please assume you’re paying an agent, then hire the best.

3. Weren’t you going to mention something about ‘green’ listings?

Can we please get back to Home Buying?

4. Soon. Please get the phone.

Thursday, March 1, 2007

Green, Green?

Dylan Rivera wrote a piece in yesterday’s Oregonian that begs perspective. A third of the front page of the Business section, above the fold, overshadowing news that covered a 416 point drop in the DOW. The breathless headline: “Local homes database turns ‘green’” and the sub head, “Environmentally friendly information for Realtors signals good news for some buyers and sellers and starts a trend.”


Let’s start here. Yes, the RMLS did introduce a new search mechanism for ‘green’ properties, and did so without fanfare. As of today, of the 8125 active listings in the Portland Metro area, those that carry the ‘green’ label number: 17. These are split between four builders in four developments, all new construction. So far, at least, it appears ‘green’ buyers don’t have much choice.

Green marketing – please just assume the quotes – has a very spotty history. Back when the ozone layer was the crisis du jour, Advertising Age found that over 70% of those asked said they would definitely purchase more expensive dispensers over aerosol to save the environment; six months later AA went into the homes of the same people and found over 80% still using aerosol.

So if I were to speculate – and it’s just speculation because I’ve never had a buyer ask for green properties nor had a seller suggest green as a marketing strategy – is that green will have a marginal effect, making a difference only when all other things – including price, or at least savings offsets – are equal. Whatever the case, the only determining factor will be: buyers. If it’s important, they’ll let us know.

Realtors also are hoping the change will help push up prices – and commissions – for some abodes listed in their Regional Multiple Listing Service.

Even the most venal among us wouldn’t suggest a builder add cost just to jack the price to put an extra $100 in our pocket, certainly not without an underlying demand. That’s just silly.

But much more importantly (and Mr. Rivera or his sources should know this): A Realtor’s first obligation is to the fiduciary interest of his or her clients. I can’t speak for the entire Portland area, but those Realtors I work with every day take that very seriously. If the client is a seller, that means negotiating the best possible sales terms for the seller; any commission effect is ancillary. The same agent will turn around the next day and, representing a buyer, negotiate a lower price. Adding $4000 to the sale of a $400,000 home isn’t going to motivate any agent I know to vitiate his or her primary duty.

But RMLS members are allowed far more detailed searches and can input data. Realtors point to such access when arguing for their commission and services.

As I said in my initial post, Realtors spend too much time trying to hoard data, especially since so much of it can be found anyway. So as things now stand this is partly right.

But it’s also wrong. The value of a Realtor isn’t in the access to information, it’s in the ability to organize, interpret and apply that information to real world decisions. I can buy Grey’s Anatomy in any Border’s, but you’ll still find me in the doctor’s office when I have chest pain.

Finally, after his lobbying efforts failed to get the Gainesville, FL MLS to add Energy Star to its listing filters, Karl Sayles says this:

“I think they’d have trouble unloading the inventory that wasn’t Energy Star…I don’t mean to trash Realtors, but they’re just out for a buck.”

This from an Energy Star lobbyist. [He also famously said: “As consumers become more educated and familiar with all of these benefits that energy efficiency has to offer, in 5 years non-ENERGY STAR rated homes will become functionally obsolete.” Right.]

My question to Mr. Rivera is simple: if this roll-out is worth the expanded coverage, why did he have to go to Florida to get a significant – albeit gratuitously smarmy – quote?

Why was it included at all?