Free the Market! Free the Market!

I read Bloodhound Blog frequently. Mostly inside real estate for those connected to the profession, it's still fascinating reading for anyone interested in what may lie ahead in the buying and selling of homes.

It has many excellent contributors, but is run by Greg Swann, principal broker of Bloodhound Realty in Phoenix. Greg's a terrific writer, writes, I believe, a weekly column for the Arizona Republic, and knows the business thoroughly. But what keeps me coming back is his passion for the free market, which is almost always defined as what's best for you, the customer. That means he's more interested in making agents better agents as opposed to better salespeople, and that he occasionally has to go against the protectionist orthodoxy that can invade our industry and your rights as consumers of our services.

Thus yesterday this was posted. Briefly, from the Arizona Republic:

An Arizona regulatory board has ordered Zillow.com to stop offering its online estimates of home values.

The Arizona Board of Appraisal has issued two cease and desist letters to the popular real estate Web site, claiming Zillow needs an appraiser license to offer its "zestimates" in Arizona.

"It is the board's feeling that (Zillow) is providing an appraisal," said Deborah Pearson, Board of Appraisal executive director.

Granted it's Arizona, not Oregon; granted it's obtuse on so many levels it approaches parody; and granted it has almost no chance of getting anywhere: it's as if the American Library Association issued a cease and desist to Google.

But it's symptomatic of how industries in general, and ours in particular, react to innovation that's perceived as competition: Gather the lobby, circle the wagons, and regulate that competition out of existence. Greg says it well:

This is Rotarian Socialism in action. The so-called regulatory body serves at the beck and call of the putatively-regulated industry. They have no hope of doing anything but making themselves look ridiculous in public, but they have to answer to their allegedly regulated masters no matter what.

Zillow does what it does very, very well. It's decidedly not entirely accurate, but it admits that up front.

What it does do is make me better at my job. Almost every client – both buyers and sellers – with whom I've worked knows the site, and has used it. I have to be better at justifying any comp I do.

One last thing: Bloodhound believes – as do I – that good agents are worth every penny they charge, and then some. The business is changing, and rather than shrink from competition and new ideas, we can thrive on them.

We have to.

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?
   
   
   

Green, Green Update

Bless The Oregonian. When the editors get on a theme, they hammer it!

A few weeks ago it was a billion column inches devoted to the new green listings data point on our local MLS. Since then we've had green lumber and green building. This morning we have green cars on the front page and green clothing in the business section.

Again, this isn't a bad thing. Green products sell, all other factors being equal. The Prius is a popular car because it delivers great gas mileage without a great deal of sacrifice in performance, and a relatively small premium on the initial investment. Hua, the new clothing retailer, is at least saying the right thing: if the clothes aren't right – and competitive with other brands – nothing else matters. And it doesn't (though I note the article didn't contain any pictures of the actual product).

Back in the early '90s, when I was still in the shoe business, a local company came out with a line of completely recycled footwear. Special rubber for the soles, uppers of recycled something or other, even the packaging was all from recycled paper. There was enormous hype, and all the department stores bought into it. Might have worked, too, except they were manifestly unattractive, overpriced, didn't fit and fell apart.

I think the brand and the concept have been resurrected, but their website doesn't work and the only product I can find is at half price. Perhaps it's because … well, you be the judge.

All of which is the long way to update the MLS numbers: There are now 171 designated green listings. Out of 10,442.

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.

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.

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?

Sellers! It's not your market!

I’ve been touring a lot of homes the last several weeks, in all price points. Working mostly as a buyer’s agent allows me to see what impresses a buyer and, more importantly, what decidedly doesn’t. So I’m taking a break from Buying 101 to talk to sellers:

It takes three weeks longer to sell a home now than it did a year ago. Inventory, at 6.2 months, is higher than it’s been since 2002. With lots and lots from which to choose, a seller needs every advantage.

There are five factors that go into selling a home: Price; Location; Economic Environment; Condition; and Marketing. Note a listing agent has complete control only of the last: his or her greatest responsibility is to use knowledge to assess the others before any marketing takes place. If not, the old axiom applies: nothing kills a bad product faster than good advertising.

Location and Economic Environment – interest rates, local job market, etc. – are pretty much fixed, but both affect the most important consideration, the right Price. Listen to your agent, and be realistic! Twenty percent of the homes I’ve been in since the first of the year the prices are, frankly, delusional; thus selling prices 20% below the original listing price are not uncommon. In almost all those cases, the final price would have been higher if priced right from the beginning.

[I’ll cover this more in later posts, but when picking a listing agent do not pick one just because the comp was the highest, and by all means don’t pick the one that leaves the price entirely up to you.]

Condition. Unless you’re selling a fixer – and have priced it accordingly – make the obvious repairs before listing! Paint, inside and out if necessary. A few thousand dollars spent here can mean many more on the other end. Clean up the landscaping. Polish the appliances, get rid of clutter, clean carpets, get rid of clutter, clean windows in and out, get rid of clutter, deodorize pet and smoking smells, get rid of clutter: you’re selling your home, not your porcelain frog collection. If the home is already vacant – and sometimes even if it’s not – have it evaluated and staged by a professional stager. It can make all the difference, worth every penny.

Marketing. After everything else is in place and, in the real estate vernacular, your home ‘shows easily’, the agent’s responsibility becomes getting as many showings as possible. Make sure there are a full complement of photos – MLS allows eight, but individual sites allow as many as 99 – and make sure they’re good photos; pictures of empty bedrooms don't sell a lot of real estate. Virtual tours will show up not just on the MLS, but other web sites as well. Make it as easy as possible for agents to show: use a lockbox, be flexible, avoid serious restrictions. And, while buyer’s agents should not consider it a factor, make sure the buyer’s agent commission is in the norm, currently 2½ to 3 percent.

Do all this, and you’ll be a full step ahead of half the homes I’ve been in this week…

Home Buying Process (4) Selecting/Viewing Homes; Decision

1. Where’ve you been?

Sorry, busy. Love those buyers!

2. Right. May we start looking at homes now?

Soon. You’ve determined one of the two most important aspects in buying, a price you can comfortably afford. Stick to that price range. Looking at half-million dollar homes when you’re in the $300k range produces little but inflated expectations.

The second most important: location. Even if you’re not new to the area, focus on those things most important to you – schools, commute time, walking distance to shopping, crime rate, neighborhood turnover, etc – get recommendations from your agent and drive through those neighborhoods to see what feels best. Narrow it down to a few and prioritize, remembering that location also determines price. You may have to sacrifice some of one for more of the other.

3. …Now?

Not quite. Broadly prioritize needs: size, yard, bedrooms, baths. At this point don’t get too picky, otherwise you may miss something.

Your agent will have an internet search engine – either directly from the MLS or a more sophisticated map based system – that can give you current listings in the price and neighborhoods of your choice. Study them. Narrow it down to seven or eight; your agent will likely have suggestions based on conversation as well.

4. To the car??

Yep, armed with two things: patience and a notebook. If you have a camera even better, or ask your agent to shoot photos for you. Take your time, take notes, and by all means talk about what you like or don’t like about what you’re seeing. That’s part of the agent’s learning process.

Under no circumstances see more than ten homes in a day; they’ll all start looking the same. Process the notes over tea soon after you’re done.

In the meantime, a good agent will be watching you and listening to what you’re saying. After that first day a good agent can have a good enough idea that he or she can be previewing homes for you and making informed recommendations.

Then: continue as long as necessary and you’ve found the home you want, not one that will simply do.

5. How do I tell the difference?

Instinct.

6. Wow. Cryptic. Explain?

Home buying is equal parts right and left brain, intuitive and rational. I’ve seen a number of people rely too heavily on the latter, talking themselves into liking a home because it has check marks by all the requirements, but no real connection. They end up in a house, not a home, and move as soon as they get the chance.

On the other hand, too much “Oh, I just LOOOOOOOVE IT!” can lead to overlooking problems that may exist. Not good either.

Make the connection – believe me, your agent will know when you do – then rationally weigh all the contingencies. There’s nothing an agent likes to hear more than “We just love it.” at the end of a year or two.