Dear Lake Oswego Buyers: It’s Time.

I’ve never considered it part of my job description as a buyer’s agent to talk anyone in to anything. My job is to advise: to interpret needs and wants of every client, to find the homes that fit those needs, to negotiate an equitable and binding sales agreement, then to see the process through to closing. I don’t think I’ve ever had to manipulate someone into making a buying decision he or she was clearly not ready to make.

But in the last year or so indecision has evolved into an art form. There are certainly some legitimate reasons: Inventories have been rising, sellers have been reticent to price realistically, and every day brings a new round of “Housing Market DOOOOOOOOMMED!” headlines, understandably driving buyers to the sidelines until some sense can be made out of the mortgage sub-prime /liquidity /standards /foreclosure mess. That, of course, exacerbates another round of headlines, leading people like CNBC’s Jim Cramer – a buffoon who, as Greg Swann points out, screams for a living on cable TV – to declare on the Today show last week: “Don’t you dare buy a home now. You’ll lose money.” He did amend that the following day on CNBC, exempting Seattle as the one area where prices aren’t dropping, his fact checkers not digging quite enough to know the same is true of Portland and a high percentage of the Pacific Northwest. [I’m not sure that mattered much; more people read BHB on a given day than tune in to that particular network.] It's a barely meaningful statistic anyway: because LO showed last month a 6.3% appreciation does not mean an individual home will sell for 6.3% more than it did a year ago - it emphatically won't - nor does it mean that in a market where there's a 6.3% depreciation that a home will sell for 6.3% less. There are simply too many variables.

So in keeping with the all real estate is local axiom, there’s a temper shift emerging in Lake Oswego, the local market with which I’m most familiar. [Thus: it may be true of the broader Portland Metro market as well; I haven't run the numbers.] Here’s what I see:

1. Inventories are down from thirty days ago, after a steady and dramatic rise over the last nearly two years. I’d love to say that’s because of sales – it’s not; September sales were down over 30% compared to September 2006. It’s because fewer listings are coming on the market, listings are expiring and not being relisted, or listings are being canceled or withdrawn. Those are the sellers who don’t have to sell immediately or who have decided to enter the rental market, sellers who on average kept their prices artificially high.

2. Many of the remaining sellers are motivated, moreso than ever. Sellers in large part have listened to their agents and had their homes put in turnkey condition with necessary repairs and upgrades. Now they’re further motivated by wanting to sell before the winter doldrums; list prices are dropping rapidly. Buyers are finding very, very nice homes at very, very attractive prices.

3. There’s still a lot from which to choose: As of yesterday there were 100 single family homes listed for under $500k [Note to those reading from outside the area: median price in LO is nearly $500k]; 205 between $500k and $1m; and 126 over $1m. And note only a very small percentage are selling for full list price.

4. The mortgage liquidity crisis is about over, and rates remain at historic lows. This does not mean we’ll return to the days when to get hundred percent financing all you had to do is prove you could breathe, but if you have good credit and 20% down you can own the market. [Obviously there are still many loan products available for individual circumstances; consult a mortgage professional.]

Final thought: all these reasons triple if you’re looking to buy a home to live in for five years or more, to raise a family or retire, rather than simply looking at it as an investment.

A home is, after all, first and foremost a home.

Jim Cramer notwithstanding.

Home Buying Process (6) Escrow and: Possession!

1. Hey, it's been a month! I thought you said…
   
   I wrote a term paper once – Spring term – titled Spring Fever. In it I made the case that the phenomenon is real, that people really do slow down and procrastinate more as the weather turns from grey to not grey. Turned it in almost two weeks late. Got an A.
   
   That's my excuse and I'm sticking with it.
   
   


2. Still looks pretty grey to me but, whatever. Shouldn't you follow the Imus example and apologize?
   
   Sorry.
   
   


3. Thank you. Now: We have an agreement! I've bought a house!
   
   Almost. The escrow period – when the transaction is put into the hands of a neutral third party, usually a title company – can be as short as a couple weeks in the case of a cash transaction, to as long as sixty days or more if one or the other party need the accommodation and both parties agree. The point is it's a crucial period, can be enormously stressful for both buyers and sellers, and you need to know what to expect so there are no surprises.
   
   


4. Oh, dear. Should I be afraid?
   
   Good heavens, no! Just know what to expect, and lean on your agent: as noted, this is where they can earn their keep! [An aside: be very careful of outside suggestions. They can be well intentioned – or not – but can lead to confusion and more stress than necessary. Again: listen to your agent. He or she has the all the necessary information, and, if you hired well in the first place, has your best interest in mind.]
   
   Time is of the essence. Sounds perfunctory; it's not. It's a crucial part of the Sales Agreement. Each stage of escrow has a date attached, and both parties need to agree – in writing – if those dates are extended. Pay close attention to those dates!
   [Your agent will be there nagging you.] Otherwise you can find yourself in breach. Briefly:
   
   Loan application. If you're applying for a mortgage, you have three business days [Note: 'business days' excludes weekends and holidays] to make the actual application. This does not mean you can't change lenders later in the transaction, just that you're making a good faith effort to get the process rolling.
   
   Disclosures. Unless it's new construction or the seller is a bank or holding company, the sellers must fill out a four page disclosure form outlining any problems with the property that they're aware of. Because of past siding problems there's an additional Siding Disclosure, and if the home's older than 1978, a lead based paint disclosure. The listing agent will get them to your agent immediately. Go over them carefully: if there is anything you need explained, get the explanation! Unless you've waived it in the agreement, from the day you receive the disclosures you have a five business day revocation period in which to terminate the agreement if you see something that's unacceptable to you. You get your earnest money back, with no agreement necessary from the seller.
   
   Preliminary Title Report. Will be ordered as soon as escrow is opened. Gives information on any outstanding liens, any easements, whether the seller has clear title and is therefore able to sell. Look it over carefully with your agent!
   
   Inspection period. Can't say this too many times in too many ways: GET YOUR OWN INSPECTION. Even if it's new construction, even if a recent inspection done by someone else is available. It's the best $350-$500 you'll ever spend. Should it turn out everything's perfect, you've bought peace of mind! If you have friends with references for a good inspector, terrific; if not your agent will have a list of two or three.
   
   Unless it's modified in the agreement, the inspection period is ten business days from the date of the agreement. Note in those ten days it's necessary not only to get the inspection, but any follow up inspections (sewer scope, oil tank, pests, etc. ), any appraisals to quantify repairs of any problems that may exist, and a negotiated addendum for any remedial action necessary on the part of the seller. So it's best to schedule the inspection as early as possible.
   
   If, within the inspection period, you find the property unacceptable in its current condition, or can't reach an acceptable agreement to get repairs done, you may file an addendum stating your Unconditional Disapproval of the property, terminate the transaction and receive your earnest money back. Note: If by midnight of the tenth day of the inspection period no agreement has been reached, no notice of disapproval has been filed and no extension agreed to, the inspection period automatically sunsets and you've accepted the property as is. Watch those dates!
   
   And, do I need to say it? Listen to your agent!
   
   Appraisal. Most mortgage brokers will wait until the inspection period is over before ordering an appraisal; no sense spending the $500 or so unless you're sure the property is up to your expectations. Lenders, of course, need the appraisal to ensure the home they're lending on is worth what you're paying. Even if there are discrepancies – not often, but it happens – any differences can be negotiated with the seller.
   
   Financing. The final piece! This is where a good mortgage broker is invaluable: He or she will stay in contact with you and with your agent, keeping things moving so there's no delay in closing. You can still expect odd questions from the underwriter "Why, in 1906, did your great great grandmother not pay for that crab on the San Francisco waterfront? … Earthquake? What earthquake?" but good brokers (and agents) buffer that kind of thing.
   
   Signing. At least two or three days prior to the closing date, the lender should have packaged all the loan documents and sent them to the escrow officer. There the escrow officer will process them, ready them for signing and prepare you a preliminary closing cost estimate, the net amount you need to bring in to sign, in the form of a cashier's check. You'll also have the option of getting copies of the documents you'll be signing so you can read them in advance, and prepare any questions you may have. Then – and prepare the muscles in your hands and fingers in advance – signing! Have your agent make the appointment at least one day before closing. He or she will very likely be with you, possibly your mortgage broker, and a good escrow officer can explain in detail the three or four stacks of stuff you'll be signing. Clarify anything about which you're not sure! If all have done their homework, there should be no surprises, and it's actually a fun time; you're only hours away!
   
   Closing! Note closing is the day funds are released and the deed is recorded. The escrow officer will call your agent when each occurs; after recording, it's time to CELEBRATE!!!
   
   You own a home!
   
   Now: wasn't that fun?
   
   


5. 
   
   YES! But: Is this the last we'll talk?
   
   Not necessarily. Are you ready to sell?
   
   
   

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.

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?

HAHAHAHAHAHAHAHAHAHA!!

8. Be serious!

Sorry.

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?

Promise.

12. What's with the picture?

The door to your dream home.

13. ...

OK. I just like the colors.

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.”

Well.

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?

Home Buying Process (2): Finding a Realtor®

1. Why do I need an agent? I can find listings on the internet. And can’t I save money by dealing just with the listing agent?

With so many internet search engines yes, you could probably find a home, though a Realtor can help you find it faster and avoid finding the wrong one.

But finding a home is only the first part of a long process where the benefits of representation really pay off. (To follow.) Note Buyer Agency wasn’t codified into Oregon law until 1994, and was done so then because so much of a transaction leaned to the side of the seller. Get representation!

As to saving money: not likely. Yes, some listing agents will drop their commission if they represent both the buyer and seller, but there are three parties who want part of that savings: The buyer (you), the seller and the agent. The agent is usually the big winner, especially because any savings a buyer may glean could possibly have been negotiated by someone representing only the buyer’s interest.

Incidentally, most good agents I know will represent both buyer and seller (dual agency) only in perfect circumstances, say a mother selling to her son. There are just too many legal pitfalls in representing one party in whose interest it is to get the highest possible price and another whose interest is paying the lowest.

Can’t say it often enough: Get representation!

[Side bar: A number of internet based companies have introduced models which, in return for using their services, part of the buyer’s agent commission is rebated to the buyer. That’s illegal under Oregon law.]

2. OK, ok, ok! How?

Interview. Remember an agent is being paid for his or her services, and in a very real sense it’s the buyer that does the paying because it’s built into the price of the property. You deserve the best.

Now I suppose I should offer a litany of appropriate questions – here are some good ones (ht Rain City Guide) – but that misses what should the point of the interview: Connect.

I’m a big believer in intuition. If you trust it, you can tell more about a person in ten minutes face-to-face than you can from a hundred emailed well rehearsed answers to standard questions. If you have to be talked into liking someone, it’s probably the wrong person.

You’re looking for three things: Honesty, knowledge, and dedication.

Honesty: Agents are bound by law and ethics to customer loyalty, which broadly means your needs supersede any needs of the agent. Most agents are intensely faithful to that; some, though, will walk you through home with higher commissions and bonuses first. You must be able to trust!

Knowledge is more than just knowing the market and the idiosyncrasies of a transaction; it’s knowing people. Believe it or not, you may not know exactly what you want. Just by watching, a good agent can narrow the focus after no more than a dozen homes, and often can tell you’ve found the right home even before you do! So concentrate not just on the answers you’re getting to questions, but the questions being asked of you.

Dedication. A good buyer’s agent rarely works with more than four or five active (i.e. ready to buy) buyers at a time; more than that stretches the ability to properly serve each. Make sure the agent will be there throughout the process: a great deal of the work comes after the sale agreement is signed!

3. Anything else?

Yes. Loyalty works both ways. Find a good agent and stick with that agent. Many will ask you to sign a Buyer’s Agent Agreement, as much a guarantee to you that you’ll be given full attention as any agent benefit. Good agents will always ask “Are you already working with an agent?” in the first thirty seconds of a conversation, and the absolutely most certain way of diluting the quality of your representation is to work with several agents simultaneously. Loyalty pays!