Everything is negotiable. When an Agent tells you "I can't" or "I won't" he/she is either telling you their personal policy, or their company's policy. There is no State, Local or Federal law that mandates commissions. It is ALL negotiable. If you can dream it up, it can be done (one such story is below). Whether or not it's the smart thing to do for you is more than one blog post can handle, but I'll try to share what most Agents either don't know, or aren't willing to tell you.
Commissions 101:
Seller's generally negotiate commissions with their agent, the "Listing" Agent. San Francisco's most common commission is 5%. Most of the time 50% of this commission is offered to "Buyer's Agents", and most times a Buyer's Agent is involved. So most agents earn 2.5% of the sales price in every transaction they're involved in. 2.5% of a $1 million property is $25,000, but then most Realty firms take 30% to 50% of that commission. So the Agent's "gross" commission is $12,500 to $17,500, and from this we pay for nearly everything a typical office worker takes for granted; health insurance, office supplies, office space, marketing, taxes, etc, etc. Taxes alone mean we probably net no more than $9,000 to $12,000 on a $1 million sale. But since you're probably not crying for us agents, let's move beyond Commissions 101.
Dual Agency:
This is when an agent represents both the Seller and Buyer. This most often happens when the Buyer is searching for homes without their own agent (not wise, but many Buyers start out this way before they consider themselves "serious"). The Listing Agent offers to help them write up an offer, or have a colleague write up the offer (often for a very small cut). Thus the Listing Agent earns close to or the full 5%. In this instance the Buyer can try to reduce the purchase price by 1% or 2%. Sounds easy, but it can be very difficult since most unrepresented Buyers don't know what's possible, or how to do it. Again, this is a long subject on negotiating in general, and is often property and situation specific. One strong piece of advice - ask a LOT of questions. You want to know the Seller's motivation for selling, how long it's been on the market, what comparable properties have sold for, and more. You might over-pay for a "stale" property by $50,000 and save yourself $20,000 in commissions which is still a $30,000 loss to you by trusting the Listing Agent to represent you. Be very careful with agents who say you don't need your own agent.
Leverage:
Don't negotiate with the person with all the power and leverage. As a Buyer, a Listing agent in a Seller's market has no reason to give you a commission break. There are 10 buyers behind you trying to buy the house for full price with full commission. Additionally, in a Seller's market, Buyers are a dime a dozen. A Buyer's Agent has too many Buyers and can't get them into homes given all of the competition to "win" the bid. So if you ask for a piece of their commission, they'll just move on to another Buyer. And without a Buyer's Agent in a Seller's market, you stand little chance of "winning" a bid against buyers with knowledgable representation unless you severly over pay.
However, as a Seller in a Seller's market, you are in total control. You can negotiate an extremely low commission because nearly any decent agent will sell your home quickly for top dollar (but be wary of branded "discount" brokers - that's another blog for another day), and the Buyer's Agents won't have much choice but to accept what you give them since it's so hard to find homes for their clients. Similarly, in a cold Buyer's market, the Buyer is in total control. I had one Buyer who made an offer that excluded the commission from his offer, and made his own Commission offer. In this particular case the Seller had agreed to pay 6% total with 3% to each side (it was a tough property to sell in a slow market, so he paid top dollar in commissions hoping the job would get done - ie Seller had no leverage). The Buyer deducted 6% from his offer, and wrote up a "Commission Offer" paid by the Buyer of 5% split evenly between the two agents. The Seller's net was still the same, and both the Buyer and Seller got tax advantages (although relatively small) while the Buyer effectively paid 1% less than he had to. The reason this worked was that the property had been on the market for 3 months and the Listing Agent really had no choice but to agree since no one else was making offers. I represented the Buyer and just did what he wanted, and what was in his best interest. My Buyer actually saved more than 1% because our offer was very low as well. The Seller very reluctanly sold at this price because my Buyer made it clear he was willing to walk away if his price and terms were not met. Again, this was a very stale, unwanted property.
Today's Market:
In today's more balanced market (albeit still a Seller's market in most of San Francisco, just not over-heated) I personally find it far easier to attract Buyer clients. Therefore, it is fruitless for a Buyer to try to negotiate a commission with me up front. However, if they find a stale listing, the above strategy could work. In the above case I was paid a fair commission, and we just needed the other side to agree. Since the market still favors Sellers (Sellers with realistic expectations that is) they are the ones with the most leverage to negotiate. I personally have some unique "Win-Win" commission programs for Sellers that I would not offer in a Buyer's market, but am offering now.
An entire book could be written on this subject, so I suggest you interview several agents, and ask a lot of questions until you find the agent you like, with the "deal" you want. Hopefully I'll be one of those agents!
10/9/06
Greenspan: "the worse may be over"
Alan Greenspan apparently agrees with me (see my previous posts "Van Eck", "Bubble", "Market Update")
The Washington Post, among others, reported that former Federal Reserve Chairman Alan Greenspan's said that prices may be lower in 2006 vs. 2005, but that "the worst of this may well be over."
The bottom line is you should listen to market stats from people with access to the best and NEWEST information. The worst sources are general news sources like the local paper, national weekly magazines, and TV news. Your mother-in-law who attends Bingo for her information isn't the person to listen to either, nor are your well intentioned friends. The newspapers get old information (new to them is 3 months old) and report on it as if it's happening now. NO IT'S NOT, it is OLD NEWS.
As a Realtor with access to the latest Sales data in the Association's MLS system, I can tell you how quickly (or not) homes are selling, how much they are selling for compared to any time period you are interested in, etc. Plus, as an active Listing and Selling Agent of homes in San Francisco, I can report on foot traffic at Open Houses, and how many Buyers and Sellers are contacting me. From January to March of 2006 it was bad, really bad in some areas. To me, that was the Bubble. Certain areas in San Francisco got hammered dropping at least 20%. More popular areas were only down slightly or flat, but certainly not active. However, activity seemed to pick up in the ensuing months, and immediately after Labor Day my phone started ringing off the hook by Buyers & Sellers alike. Throughout the city other Realtors are reporting similar activity. It seems to be a pretty darn hot market right now. Watch out, we could take off again.
The Washington Post, among others, reported that former Federal Reserve Chairman Alan Greenspan's said that prices may be lower in 2006 vs. 2005, but that "the worst of this may well be over."
The bottom line is you should listen to market stats from people with access to the best and NEWEST information. The worst sources are general news sources like the local paper, national weekly magazines, and TV news. Your mother-in-law who attends Bingo for her information isn't the person to listen to either, nor are your well intentioned friends. The newspapers get old information (new to them is 3 months old) and report on it as if it's happening now. NO IT'S NOT, it is OLD NEWS.
As a Realtor with access to the latest Sales data in the Association's MLS system, I can tell you how quickly (or not) homes are selling, how much they are selling for compared to any time period you are interested in, etc. Plus, as an active Listing and Selling Agent of homes in San Francisco, I can report on foot traffic at Open Houses, and how many Buyers and Sellers are contacting me. From January to March of 2006 it was bad, really bad in some areas. To me, that was the Bubble. Certain areas in San Francisco got hammered dropping at least 20%. More popular areas were only down slightly or flat, but certainly not active. However, activity seemed to pick up in the ensuing months, and immediately after Labor Day my phone started ringing off the hook by Buyers & Sellers alike. Throughout the city other Realtors are reporting similar activity. It seems to be a pretty darn hot market right now. Watch out, we could take off again.
10/6/06
How to Buy below-market in San Francisco
With the over-crazed Seller's market gone, but still more of a Seller's market than a Buyer's market, how do you find bargains, or buy below-market in San Francisco?
1. Ask your agent for properties that have been on the market for more than 60 days (even more than 30 or 45 days might be enough). "DOM" stands for Days on Market, and after about 21 days on the market the listing is "stale" meaning it's nearly forgotten by Buyers and Agents alike. The #1 reason for a stale listing is a price that is too high. #2 is a home that shows poorly - ie bad smells, extremely cluttered with older, mis matched furniture, etc.
2. Look in neighborhoods that are slower than others. Your agent can run reports to show you the average DOM by area, zip code or neighborhood. The higher the average, and slower the market, and therefore the more desparate the Sellers should be. Secondly, ask for a report that shows the past 6 months of activity. You want the area where there are many more For-Sale "active" homes than there are homes sold per month. So if only 18 homes sold in the past 6 months, but 12 are For Sale now, you have an average of 3 homes selling per month, and therefore 4 months of supply before the For-Sale homes sell. The longer the supply, the more desparate the Sellers will be.
3. Be prepared to negotiate and walk away when you don't get your price. This is VERY unusual in San Francisco the last 5+ years. So many Buyer's Agents either don't know how to negotiate, or don't realize they can. They are used to Sellers and Listing Agents pushing them around, so they are only too happy to get a home into contract at any price, vs. realizing that they are often the ones in control now, and can push back on behalf of their Buyer clients.
4. Not all Sellers are realistic, so keep track of homes you offer on and get turned down. If they are still listed for sale 30 days later, there is no harm in trying again. The Seller may have finally seen the light.
There are still many HOT neighborhoods in San Francisco where bargains are nearly impossible, but there are many other neighborhoods that are quite slow right now, and the saavy Buyer can find bargain homes.
1. Ask your agent for properties that have been on the market for more than 60 days (even more than 30 or 45 days might be enough). "DOM" stands for Days on Market, and after about 21 days on the market the listing is "stale" meaning it's nearly forgotten by Buyers and Agents alike. The #1 reason for a stale listing is a price that is too high. #2 is a home that shows poorly - ie bad smells, extremely cluttered with older, mis matched furniture, etc.
2. Look in neighborhoods that are slower than others. Your agent can run reports to show you the average DOM by area, zip code or neighborhood. The higher the average, and slower the market, and therefore the more desparate the Sellers should be. Secondly, ask for a report that shows the past 6 months of activity. You want the area where there are many more For-Sale "active" homes than there are homes sold per month. So if only 18 homes sold in the past 6 months, but 12 are For Sale now, you have an average of 3 homes selling per month, and therefore 4 months of supply before the For-Sale homes sell. The longer the supply, the more desparate the Sellers will be.
3. Be prepared to negotiate and walk away when you don't get your price. This is VERY unusual in San Francisco the last 5+ years. So many Buyer's Agents either don't know how to negotiate, or don't realize they can. They are used to Sellers and Listing Agents pushing them around, so they are only too happy to get a home into contract at any price, vs. realizing that they are often the ones in control now, and can push back on behalf of their Buyer clients.
4. Not all Sellers are realistic, so keep track of homes you offer on and get turned down. If they are still listed for sale 30 days later, there is no harm in trying again. The Seller may have finally seen the light.
There are still many HOT neighborhoods in San Francisco where bargains are nearly impossible, but there are many other neighborhoods that are quite slow right now, and the saavy Buyer can find bargain homes.
9/28/06
Free Credit Report - and why you NEED it
Have you seen the commercial with guy asking "I'm thinking of a number between 300 and 800, do you know what it is?" For the life of me I can't recall what he's selling, but he's talking about Credit Scores. Fortunately you don't need him, or any other company trying to sell you something to get your scores. BUT, if you're going to buy a home, the higher your credit score, the more you can save in mortgage costs, so checking your credit is a MUST. Do NOT under estimate these savings. And do not delay if you are thinking of Buying a home within the next 12 months because it takes time to clean up your credit reports.
Yes, I said reportS. There are three, but don't worry about that, just visit www.AnnualCreditReport.com. By law, you get one free Credit Report per year for any reason. This one site will lead you to the three credit reporting agencies, Transunion, Equifax and Experian. To get your report is free, to get your score from each agency costs money. If you want to see your score, I highly recommend taking advantage of their initial offer when you first get to the site. You'll get a score for about $5 or $6, but if you wait to get your score, minutes later the cheapest you can get it is often $15. But the Reports are what I want you focused on. Or you can go to MyFico.com
and get a free 30-day trial, but you must remember to cancel the membership. MyFico's home page also shows you what interest rates you can get by Score range. You'll see just how much it's worth to you.
Once you have all three, be sure to save them or print them out, and then pour through them looking for "bad" or mis-information. I found $10,000 in unpaid medical bills on one (only one) of the three bureau's reports, AND the bills were in someone elses name completely. Yet that name was on my report dragging down my score as if I actually had two names. What's more is that I actually was called about 10 different names on this same report. These were easy to fix, I called the 800# and the customer service guy had it all removed in minutes because it was so obviously not me or mine.
Aside from obvious mistakes, you should be looking for the following items:
1. credit card balances that are too high. High credit limits are great, high balances are not. The ideal is to have balances that are 15.5% or lower vs. your limits. One way to improve your score is to pay down your balances, but another EQUALLY effective way is to call each of your credit card companies and ask for a limit increase. When you call, do NOT allow them to check your credit. If they insist, hang up and try again, OR ask for a supervisor, and the key question is "how much are you authorized to raise my limit to right now without damaging my credit score with an unecessary look?"
2. Too many "bad" cards. Close you department stores cards now. And stick with only the "best" names in banking and credit. AmEx is #1, then names like WellsFargo, Chase, CitiBank, Bank of America - are all good. ANYONE who does a LOT of TV advertising is BAD, BAD, BAD. You know who I mean... they advertise that they are good, but they are terrible for your credit. If you don't know who I mean, just stick with the advice - if they advertise on TV, stay away. When you do close a card, make sure the Credit Report says "Closed at Consumer Request". Do not let it say they closed it for you - that's bad.
3. "Inquiries" of your credit. If you go to a Dept store and agree to a credit card, they will check your credit. This is an inquiry, and drags your score down. If you did not authorize the inquiry, write a letter (yes, written is better, and certified mail is best, and the nastier, more threatening you are, is best-er :) You'll see on each Credit Report a long list of "soft" inquiries that the report lets you know does NOT effect your score. They don't, so don't worry about them. But if you got an inquiry, and didn't get the card, get rid of it. If they inquired, and you did get the card, there is proof you allowed it, so don't fight it.
4. Any late payments are bad. Fight these if you can... and that leads to advice on fighting anything on your report....
STEPS TO CLEAR UP YOUR REPORTS:
1. Put it in writing, send it certified mail, threaten the heck out of the Bureau. The squeaky wheel gets the oil, everyone else gets put into a big pile that barely gets touched
2. If they don't remove something, or they put it back on, then write a new letter asking for a "reinvestigation" and again, be nasty, and DEMAND that you be given the name, phone number and email address of the Bureau's representitive that did the reinvestigation, as well as the names and numbers of the people they contacted for the investigation. If this doesn't work the first time, the 2nd and 3rd reinvestiation certainly will get them to just take the problem item off.
3. Do not hire a 3rd party company to do the above for you. They charge too much, and generally have a non-skilled person just doing what I'm suggesting. But if you want to go the extra mile, find a lawyer who fights credit bureau's, and just CC him/her on every letter. Also threaten to report the Bureau to the FTC (Federal Trade Commission).
4. Start this 3+ months before you need it. If you pay your credit card balances down, they credit bureau's don't report that for 30 to 90 days. But even if you're buying in the next 30 days, you are better off doing it than not, so get started now.
There are other advanced suggestions, but this will take care of 95% of your problems, and dramatically raise your credit scores. And whatever you do, when you are in the process of buying a home, do NOT make any other big purchases like a car. If you do something to drag down your credit at the last second, you may not get a loan at all - or at least not one that is any where as good as what you were expecting.
Call or email me if you'd like to ask a question about your credit.
Yes, I said reportS. There are three, but don't worry about that, just visit www.AnnualCreditReport.com. By law, you get one free Credit Report per year for any reason. This one site will lead you to the three credit reporting agencies, Transunion, Equifax and Experian. To get your report is free, to get your score from each agency costs money. If you want to see your score, I highly recommend taking advantage of their initial offer when you first get to the site. You'll get a score for about $5 or $6, but if you wait to get your score, minutes later the cheapest you can get it is often $15. But the Reports are what I want you focused on. Or you can go to MyFico.com
and get a free 30-day trial, but you must remember to cancel the membership. MyFico's home page also shows you what interest rates you can get by Score range. You'll see just how much it's worth to you.Once you have all three, be sure to save them or print them out, and then pour through them looking for "bad" or mis-information. I found $10,000 in unpaid medical bills on one (only one) of the three bureau's reports, AND the bills were in someone elses name completely. Yet that name was on my report dragging down my score as if I actually had two names. What's more is that I actually was called about 10 different names on this same report. These were easy to fix, I called the 800# and the customer service guy had it all removed in minutes because it was so obviously not me or mine.
Aside from obvious mistakes, you should be looking for the following items:
1. credit card balances that are too high. High credit limits are great, high balances are not. The ideal is to have balances that are 15.5% or lower vs. your limits. One way to improve your score is to pay down your balances, but another EQUALLY effective way is to call each of your credit card companies and ask for a limit increase. When you call, do NOT allow them to check your credit. If they insist, hang up and try again, OR ask for a supervisor, and the key question is "how much are you authorized to raise my limit to right now without damaging my credit score with an unecessary look?"
2. Too many "bad" cards. Close you department stores cards now. And stick with only the "best" names in banking and credit. AmEx is #1, then names like WellsFargo, Chase, CitiBank, Bank of America - are all good. ANYONE who does a LOT of TV advertising is BAD, BAD, BAD. You know who I mean... they advertise that they are good, but they are terrible for your credit. If you don't know who I mean, just stick with the advice - if they advertise on TV, stay away. When you do close a card, make sure the Credit Report says "Closed at Consumer Request". Do not let it say they closed it for you - that's bad.
3. "Inquiries" of your credit. If you go to a Dept store and agree to a credit card, they will check your credit. This is an inquiry, and drags your score down. If you did not authorize the inquiry, write a letter (yes, written is better, and certified mail is best, and the nastier, more threatening you are, is best-er :) You'll see on each Credit Report a long list of "soft" inquiries that the report lets you know does NOT effect your score. They don't, so don't worry about them. But if you got an inquiry, and didn't get the card, get rid of it. If they inquired, and you did get the card, there is proof you allowed it, so don't fight it.
4. Any late payments are bad. Fight these if you can... and that leads to advice on fighting anything on your report....
STEPS TO CLEAR UP YOUR REPORTS:
1. Put it in writing, send it certified mail, threaten the heck out of the Bureau. The squeaky wheel gets the oil, everyone else gets put into a big pile that barely gets touched
2. If they don't remove something, or they put it back on, then write a new letter asking for a "reinvestigation" and again, be nasty, and DEMAND that you be given the name, phone number and email address of the Bureau's representitive that did the reinvestigation, as well as the names and numbers of the people they contacted for the investigation. If this doesn't work the first time, the 2nd and 3rd reinvestiation certainly will get them to just take the problem item off.
3. Do not hire a 3rd party company to do the above for you. They charge too much, and generally have a non-skilled person just doing what I'm suggesting. But if you want to go the extra mile, find a lawyer who fights credit bureau's, and just CC him/her on every letter. Also threaten to report the Bureau to the FTC (Federal Trade Commission).
4. Start this 3+ months before you need it. If you pay your credit card balances down, they credit bureau's don't report that for 30 to 90 days. But even if you're buying in the next 30 days, you are better off doing it than not, so get started now.
There are other advanced suggestions, but this will take care of 95% of your problems, and dramatically raise your credit scores. And whatever you do, when you are in the process of buying a home, do NOT make any other big purchases like a car. If you do something to drag down your credit at the last second, you may not get a loan at all - or at least not one that is any where as good as what you were expecting.
Call or email me if you'd like to ask a question about your credit.
Cost of a Buyer's Agent
Buyer's Agents are "free". Free means you don't have to pay them, but of course they do get paid to help you. Listing Agents represent Seller's and agree to the commission. The vast majority of San Francisco homes are sold with a Buyer Agent representative, so Listing Agents know to advertise a certain commission to Buyer's Agents to encourage them to bring their Buyers. Some naysayers still see this as a conflict of interest with Buyer's Agents trying to push Buyers to buy. Certainly, there are those kinds of agents, but most Buyers of any product can usually see the sleazy, untrustworthy, "sales" guy/girl a mile away. Plus, you should sign a "Buyer-Broker" agreement which spells out your Agent's duty to you. If you don't sign the agreement, your supposed representative is actually legally representing the Seller. This can be a problem.
But the real problem is with the Listing Agent who is DEFINITELY representing the Seller's interest over yours. If you run into a Listing Agent who says "don't worry, you can just write the contract with me", you ought to be smelling something fishy. He/she is just trying to make both ends of the commission, and/or will likely skew all data, information, and reports in favor of a higher sales price, and other things that favor the Seller. I've seen properties that have sat on the market for 3 months sell for the "asking" price intead of below it when a Buyer came along who was represented by the Listing Agent and not their own representative. A good Buyer's Agent knows a "stale" listing is ripe for under-bidding.
A good Buyer's Agent can do so much more for Buyers, but at the very least, since the cost is "free", and Listing Agents care about you second, if at all, you ought to find a good agent as early in your home search as possible.
But the real problem is with the Listing Agent who is DEFINITELY representing the Seller's interest over yours. If you run into a Listing Agent who says "don't worry, you can just write the contract with me", you ought to be smelling something fishy. He/she is just trying to make both ends of the commission, and/or will likely skew all data, information, and reports in favor of a higher sales price, and other things that favor the Seller. I've seen properties that have sat on the market for 3 months sell for the "asking" price intead of below it when a Buyer came along who was represented by the Listing Agent and not their own representative. A good Buyer's Agent knows a "stale" listing is ripe for under-bidding.
A good Buyer's Agent can do so much more for Buyers, but at the very least, since the cost is "free", and Listing Agents care about you second, if at all, you ought to find a good agent as early in your home search as possible.
9/25/06
Most & Least expensive Listings in SF
I usually get buyers looking for homes or condos well below the lowest possible prices in San Francisco, but thought it would be interesting to share the most expensive homes for sale, as well as the least expensive. Check out the following:
2845 Broadway. Remember Michael Douglas in "The Game" calling the cops and saying he lives in the "biggest house on Broadway. Well, I guess he was talking about this $65 million home. Interestingly enough it sold for $32 million in November 2002. The above link will only be active for 30 days, so if you're reading this late, drop me an email and I'll send you the new link.
Personally, I'd rather live in the most expensive Condo in the city at 990 Green St, #6. Check out those photos.
Now for the cheapest. This Studio apartment with no parking, 83 McAllister St #312 for $260,000. You'd get a golf course mansion in many States, but this puts you a block from busy Market Street in a closet size space.
The cheapest home, 74 Neptune Street, is a $449,000 fixer that is tenant occupied and is "subject to court confirmation".
So if you're looking for a Single Family Home under $500,000, you may have to look outside of San Francisco unless you want a problem property.
2845 Broadway. Remember Michael Douglas in "The Game" calling the cops and saying he lives in the "biggest house on Broadway. Well, I guess he was talking about this $65 million home. Interestingly enough it sold for $32 million in November 2002. The above link will only be active for 30 days, so if you're reading this late, drop me an email and I'll send you the new link.
Personally, I'd rather live in the most expensive Condo in the city at 990 Green St, #6. Check out those photos.
Now for the cheapest. This Studio apartment with no parking, 83 McAllister St #312 for $260,000. You'd get a golf course mansion in many States, but this puts you a block from busy Market Street in a closet size space.
The cheapest home, 74 Neptune Street, is a $449,000 fixer that is tenant occupied and is "subject to court confirmation".
So if you're looking for a Single Family Home under $500,000, you may have to look outside of San Francisco unless you want a problem property.
9/5/06
PropertyShark.com - great property tool
I believe Buyers & Sellers ought to have more information, and more control, and the internet is doing just that for them. In my continual search for best of breed internet services, I'm adding PropertyShark.com. It allows you to find property tax records, including past sales, for almost any property in San Francisco. I have private access to sites like this one, and do all of the homework for my clients, but if my clients are anything like me they'll want to see the actual data for themselves. PropertyShark.com provides a wealth of information, so when you find a property you like on either of my MLS sites, SF-MLS-Search.com or CleanOffer.com you can then go to PropertyShark.com and find out almost everything about it that I've got access to.... still not everything, but an big improvement never the less.
8/31/06
Housing boom going to continue?
Finally I've found articles that actually take the opposite tack as most others... read this one from a Van Eck-Tillman Advisors who supposedly has predicted all major market moves for 32 years.
http://www.millionaireriches.com/wpblogger/?p=36#more-36
After reading the above, we may actually be in a lull, with a new housing boom coming as soon as Buyers realize the newspapers are wrong. So check out my internet links for home searches in San Francisco, and if you're interested in investment properties outside of city, I've found some pretty good investments, so drop me an email if you're interested.
http://www.millionaireriches.com/wpblogger/?p=36#more-36
After reading the above, we may actually be in a lull, with a new housing boom coming as soon as Buyers realize the newspapers are wrong. So check out my internet links for home searches in San Francisco, and if you're interested in investment properties outside of city, I've found some pretty good investments, so drop me an email if you're interested.
8/28/06
Yes, another "Bubble" comment
Each time I read another article, I can't help but add my two cents. There are so many "Bubble Blogs" out there with 100% certainty that we're about to have a major crash just like the dot-com crash or the early 1990s when home prices took a dive. Unfortunatly for them (fortunately for us homeowners) the comparisons are way off. One big one is that job losses and unemployment caused so much of the duress in the 1990's when Seller's had to sell, and there were few buyers. Now, job reports are all positive, and Seller's are not under duress. Another is that there was an 18 month supply of homes in the early 90's, now it's about 6 months which is dividing line between a Buyer's market and a Seller's market. We've got a LONG way to go to 18 months supply.
The reason bubble pundits are so positive is that in 2007 about 12% of the nation's mortgage debt will switch to adjustable payments. But is this 12% of all homes? Not likely. About 8% of all homes change hands each year. With about 40% of loans being the risky ARMs the bubble pundits are so worried about in the last couple of years, that means about 3.2% of homes are at risk each year for the 2 or 3 year period that ARM's were so prominent. These ARM's also varied in length, generally from 3 to 10 years which spreads it out even further.
But let's say that 3.2% of homes are at risk each year. First off, 8% of homes change hands each year. That leaves nearly 5% not at risk, who don't need to sell. Plus, don't you think ARM holding homeowners know their rates are going to adjust? Don't you think they realized that they needed to Sell or refinance before their ARM's adjusted? If they got a 5 year ARM, maybe they realized that 3 to 5 years is the average length of time many homeowners stay in their homes? How many of these homeowners will really be at risk? My guess is a very few will not act proactively and end up in Foreclosure or in a rush sale. Definitely not enough to "crash" the market. Additionally, banks HATE foreclosure. And with money supply so massive, it's likely that Banks will do what they can to alleviate the situation, including offering great refinance programs. Banks are used to a very brisk mortgage business, and are doing what they can to keep that business high. So the so-called bad debt is likely to be sold, or rolled into a new mortgage. Yes, foreclosures will rise, and yes the media will jump all over thos new numbers. Personally, that just means it will be a GREAT time to invest in real estate to pick up cheap properties in an overall strong real estate market.
Finally, many of those whose ARM's are going to adjust are in the money - they're homes have appreciated quite nicely, so they can refinance and either keep their payments low, or cash out. Or they can sell comfortably without being upside down and having to do a Short Sale. The bottom line.... the bubble pundits need to look a little harder at the facts they use to justify their predictions. 3 trillion in adjustable debt coming due in 2007 sounds horrible at first glance, but upon closer inspection, it's likely to be a minor blip on the housing market radar.
sources:
http://www.nytimes.com/2005/06/16/realestate/16arm.html?ei=5088&en=d4ea9a4dd01af4d5&ex=1276574400&partner=rssnyt&emc=rss&pagewanted=print
http://www.financialservicesfacts.org/financial2/mortgage/homeown/
The reason bubble pundits are so positive is that in 2007 about 12% of the nation's mortgage debt will switch to adjustable payments. But is this 12% of all homes? Not likely. About 8% of all homes change hands each year. With about 40% of loans being the risky ARMs the bubble pundits are so worried about in the last couple of years, that means about 3.2% of homes are at risk each year for the 2 or 3 year period that ARM's were so prominent. These ARM's also varied in length, generally from 3 to 10 years which spreads it out even further.
But let's say that 3.2% of homes are at risk each year. First off, 8% of homes change hands each year. That leaves nearly 5% not at risk, who don't need to sell. Plus, don't you think ARM holding homeowners know their rates are going to adjust? Don't you think they realized that they needed to Sell or refinance before their ARM's adjusted? If they got a 5 year ARM, maybe they realized that 3 to 5 years is the average length of time many homeowners stay in their homes? How many of these homeowners will really be at risk? My guess is a very few will not act proactively and end up in Foreclosure or in a rush sale. Definitely not enough to "crash" the market. Additionally, banks HATE foreclosure. And with money supply so massive, it's likely that Banks will do what they can to alleviate the situation, including offering great refinance programs. Banks are used to a very brisk mortgage business, and are doing what they can to keep that business high. So the so-called bad debt is likely to be sold, or rolled into a new mortgage. Yes, foreclosures will rise, and yes the media will jump all over thos new numbers. Personally, that just means it will be a GREAT time to invest in real estate to pick up cheap properties in an overall strong real estate market.
Finally, many of those whose ARM's are going to adjust are in the money - they're homes have appreciated quite nicely, so they can refinance and either keep their payments low, or cash out. Or they can sell comfortably without being upside down and having to do a Short Sale. The bottom line.... the bubble pundits need to look a little harder at the facts they use to justify their predictions. 3 trillion in adjustable debt coming due in 2007 sounds horrible at first glance, but upon closer inspection, it's likely to be a minor blip on the housing market radar.
sources:
http://www.nytimes.com/2005/06/16/realestate/16arm.html?ei=5088&en=d4ea9a4dd01af4d5&ex=1276574400&partner=rssnyt&emc=rss&pagewanted=print
http://www.financialservicesfacts.org/financial2/mortgage/homeown/
Home Size - the meaning of Square Feet
A common question among home buyers is what is included in "Square Feet" measurements. I'll explain what a home appraiser explained to me, and add my own thoughts that you ought to be aware of when comparing homes.
First, no outdoor space of any kind is included in Square Feet (SqFT) measurements. That includes decks, yards, roof decks, etc. Of course each of these add greatly to value. Imagine a deck right off your kitchen allowing you to BBQ or just relax right outside. Two condos with 1,200 SqFt would justifiably feel much different in size, so when comparing Price Per SqFt be careful to take this into consideration.
Second, I was told appraisers measure from the outside of the walls in, and include ALL interior space. This means closets are included, and it of course means an extra wide hallway that can only be used as a hallway, and foyer's or other types of "wasted" space are included. This is VERY important too. The same 1,200 SqFt Condos would have dramatically different living spaces. In many older Victorian or Edwardian Condos you'll find very wide hallways. Whereas in new Condos, or even in other Victorians, you'll find minimal hallway space. I've seen 1,600 SqFt Condos that felt smaller than well laid out 1,200 SqFt Condos.
Lastly, it is not unusual to see significant differences in SqFt measurements. One appraiser might measure from the outside of the wall inward. This adds about 1 foot of space if the walls are 6 inches thick. And then there are just plain old mistakes made in measurements. So as a Real Estate Agent who does VERY thorough "CMA's" (Comparative Market Analysis) to help my Buyers and Sellers understand the value of homes, I DO use price per SqFt to make comparisons. But it is only one of the many things I compare and analyze. I'll try to visit the comparable homes, but when I can't I thoroughly review the photos from the Listing, I read the marketing and "agent-only" remarks, I check the tax records for SqFt size, and I'll call both the Seller's agent and the Buyer's agent in the transaction for the comparable home that sold. After gathering and analyzing all of this information, only then will I be able to include or eliminate some of the ones that seemed comparable based on SqFt size.
The bottom line for you.... as long as the space is livable, and what you want, that should be much more important than a home that claims to be larger, yet doesn't feel it.
First, no outdoor space of any kind is included in Square Feet (SqFT) measurements. That includes decks, yards, roof decks, etc. Of course each of these add greatly to value. Imagine a deck right off your kitchen allowing you to BBQ or just relax right outside. Two condos with 1,200 SqFt would justifiably feel much different in size, so when comparing Price Per SqFt be careful to take this into consideration.
Second, I was told appraisers measure from the outside of the walls in, and include ALL interior space. This means closets are included, and it of course means an extra wide hallway that can only be used as a hallway, and foyer's or other types of "wasted" space are included. This is VERY important too. The same 1,200 SqFt Condos would have dramatically different living spaces. In many older Victorian or Edwardian Condos you'll find very wide hallways. Whereas in new Condos, or even in other Victorians, you'll find minimal hallway space. I've seen 1,600 SqFt Condos that felt smaller than well laid out 1,200 SqFt Condos.
Lastly, it is not unusual to see significant differences in SqFt measurements. One appraiser might measure from the outside of the wall inward. This adds about 1 foot of space if the walls are 6 inches thick. And then there are just plain old mistakes made in measurements. So as a Real Estate Agent who does VERY thorough "CMA's" (Comparative Market Analysis) to help my Buyers and Sellers understand the value of homes, I DO use price per SqFt to make comparisons. But it is only one of the many things I compare and analyze. I'll try to visit the comparable homes, but when I can't I thoroughly review the photos from the Listing, I read the marketing and "agent-only" remarks, I check the tax records for SqFt size, and I'll call both the Seller's agent and the Buyer's agent in the transaction for the comparable home that sold. After gathering and analyzing all of this information, only then will I be able to include or eliminate some of the ones that seemed comparable based on SqFt size.
The bottom line for you.... as long as the space is livable, and what you want, that should be much more important than a home that claims to be larger, yet doesn't feel it.
Supply-Demand & the "Bubble"
U.S. Population growth is roughly 3 million people per year, yet in one of the most expansive housing booms in history the U.S. added "only" 1.8 million new housing units. With all the bubble fears, builders may slow in new construction, but population growth seems to be rising.
The current average household size is about 2.37 people per household, yet new home growth vs. population growth is equivalent to building one new home for every 1.53 people. While this might seem that we're overbuilding, in fact household size seems to be shrinking rapidly with more single people buying homes, delaying marriage, and limiting their households when they finally do marry and have children. Plus, the retiring Baby Boomers are buying second and even third homes, which is 1 person per household if you consider a retired couple with 2 homes.
Whats more, certain states are growing even faster than the U.S. in population vs. housing unit growth. Arizona's new construction must squeeze in 2.29 persons per household, yet this is a retirement and second home mecca (and you thought Arizona was a bad investment now - NOT!!!). Texas is at 2.17 persons, and Utah at 2 persons per household. California is "only" 1.59 person per new household being built, but that is higher than the national average, and here in San Francisco, the persons per household is likely much lower than the rest of the country, AND we're not building many new units.
As of today, Monday August 28th 2006, interest rates have slipped for 5 consecutive weeks. Rising rates is the #1 culprit cited by Bubble maniacs as the cause of the so called Bubble. But with rates staying steady, and population on a never ending upward spiral with land not increasing, demand should continue to outweigh supply and continue to increase property values for eternity. Personally, I think the bubble has already burst earlier this year. Now home prices are steady, and are likely to start an average increase each year around 3% or so. However, when you read news reports in the coming months that show a turn down in prices, longer time on the market, and fewer homes being sold, keep in mind that what you're reading is older news. The news about the decline I saw from September 2005 through March of 2006 has yet to come out. When it does come out it will scare the heck out of everyone. To me that means that between right now and when that news comes out will be the ideal time to pick up homes for bargain prices just before everyone realizes prices are already on the rise once again.
Sources for this article included:
http://www.census.gov/Press-Release/www/2006/cb06-127table3_rev.xls
http://www.census.gov/Press-Release/www/releases/archives/statepop05table.xls
http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
wikipedia.org/
The current average household size is about 2.37 people per household, yet new home growth vs. population growth is equivalent to building one new home for every 1.53 people. While this might seem that we're overbuilding, in fact household size seems to be shrinking rapidly with more single people buying homes, delaying marriage, and limiting their households when they finally do marry and have children. Plus, the retiring Baby Boomers are buying second and even third homes, which is 1 person per household if you consider a retired couple with 2 homes.
Whats more, certain states are growing even faster than the U.S. in population vs. housing unit growth. Arizona's new construction must squeeze in 2.29 persons per household, yet this is a retirement and second home mecca (and you thought Arizona was a bad investment now - NOT!!!). Texas is at 2.17 persons, and Utah at 2 persons per household. California is "only" 1.59 person per new household being built, but that is higher than the national average, and here in San Francisco, the persons per household is likely much lower than the rest of the country, AND we're not building many new units.
As of today, Monday August 28th 2006, interest rates have slipped for 5 consecutive weeks. Rising rates is the #1 culprit cited by Bubble maniacs as the cause of the so called Bubble. But with rates staying steady, and population on a never ending upward spiral with land not increasing, demand should continue to outweigh supply and continue to increase property values for eternity. Personally, I think the bubble has already burst earlier this year. Now home prices are steady, and are likely to start an average increase each year around 3% or so. However, when you read news reports in the coming months that show a turn down in prices, longer time on the market, and fewer homes being sold, keep in mind that what you're reading is older news. The news about the decline I saw from September 2005 through March of 2006 has yet to come out. When it does come out it will scare the heck out of everyone. To me that means that between right now and when that news comes out will be the ideal time to pick up homes for bargain prices just before everyone realizes prices are already on the rise once again.
Sources for this article included:
http://www.census.gov/Press-Release/www/2006/cb06-127table3_rev.xls
http://www.census.gov/Press-Release/www/releases/archives/statepop05table.xls
http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
wikipedia.org/
8/21/06
8/18/06
Hiring a Listing Agent
First - why hire a listing agent to sell your home? Mainly because you are more than likely to get more money, and have to do much less work. "More for less" vs. trying to sell on your own, and having to work very hard without knowing the tricks of the trade that only experience can bring. What those tricks of the trade are is an entire article, or book, unto itself, but rest assured, any mistake can cost you lots of money in selling too low, or taking too long to sell, or setting yourself up for potential law suits by missing important disclosures.
I'll touch on a few of the key tricks of the trade that you ought to ask about when you are comparing and interviewing Listing Agents. Just about every expert says "interview at least three listing agents". I couldn't agree more, even though that means I'll have at least two competitors each time I meet with a potential Seller client.
So what questions should you ask each Listing Agent? Here are some key ones:
1. How will you attract the most amout of buyers to my home?
2. How will you generate and/or negotiate the highest possible price for my home?
3. What do you do differently than other Listing Agents?
4. Do you offer any guarantees?
5. What is my home worth - show me how you got to that number?
6. What commission do you charge - how does that effect my bottom line?
From the above answers you will discover how confident the Agent is, how knowledgable, and you will have much to compare between the three or more agents you interview. One of the "new" tricks of the trade is use of the internet to attract buyers. The internet has taken over for print (magazines and newspapers) in a big way, and effective use of the internet is only practiced by a small percentage of Listing Agents even though research shows this is what Buyers use to find homes. If Buyers use the internet, why isn't your Listing Agent? If you're selling on your own, are you an internet expert? Do you know how buyers find homes and what they're looking for?
What about commission. The biggest mistake Sellers make is in trying to save commission rather than thinking about how a low commission is more than likely to lead to a much lower sales price. So ask what you're likely to Net in a sale, and how the Listing Agent thinks he/she can get more for your home. But commission is negotiable, and you ought to have a thorough discussion about it. Those that say "take it or leave it" ought to be left in the dust. Keep interviewing until you find a great agent who can illustrate how the commission can actually help you sell your home.
Finally, a true testament to whether or not an agent is experienced is in their "CMA" or Comparable Market Analysis which estimates your home's value in the current market. This requires market expertise, and is one of the most critical elements in any sale since the CMA is what you'll base your "Asking Price" on. Price it too high and you may lose money in the end. In San Francisco, pricing it too low is rarely a mistake, but pricing it just right, is a must to guarantee the most buyers coming through, and the most and best offers.
If you'd like to interview me to get all of the above answers, then just drop me an email to robr@kw.com
I'll touch on a few of the key tricks of the trade that you ought to ask about when you are comparing and interviewing Listing Agents. Just about every expert says "interview at least three listing agents". I couldn't agree more, even though that means I'll have at least two competitors each time I meet with a potential Seller client.
So what questions should you ask each Listing Agent? Here are some key ones:
1. How will you attract the most amout of buyers to my home?
2. How will you generate and/or negotiate the highest possible price for my home?
3. What do you do differently than other Listing Agents?
4. Do you offer any guarantees?
5. What is my home worth - show me how you got to that number?
6. What commission do you charge - how does that effect my bottom line?
From the above answers you will discover how confident the Agent is, how knowledgable, and you will have much to compare between the three or more agents you interview. One of the "new" tricks of the trade is use of the internet to attract buyers. The internet has taken over for print (magazines and newspapers) in a big way, and effective use of the internet is only practiced by a small percentage of Listing Agents even though research shows this is what Buyers use to find homes. If Buyers use the internet, why isn't your Listing Agent? If you're selling on your own, are you an internet expert? Do you know how buyers find homes and what they're looking for?
What about commission. The biggest mistake Sellers make is in trying to save commission rather than thinking about how a low commission is more than likely to lead to a much lower sales price. So ask what you're likely to Net in a sale, and how the Listing Agent thinks he/she can get more for your home. But commission is negotiable, and you ought to have a thorough discussion about it. Those that say "take it or leave it" ought to be left in the dust. Keep interviewing until you find a great agent who can illustrate how the commission can actually help you sell your home.
Finally, a true testament to whether or not an agent is experienced is in their "CMA" or Comparable Market Analysis which estimates your home's value in the current market. This requires market expertise, and is one of the most critical elements in any sale since the CMA is what you'll base your "Asking Price" on. Price it too high and you may lose money in the end. In San Francisco, pricing it too low is rarely a mistake, but pricing it just right, is a must to guarantee the most buyers coming through, and the most and best offers.
If you'd like to interview me to get all of the above answers, then just drop me an email to robr@kw.com
8/15/06
State of the market - August 2006 update
Someone living out of state just asked, so I'll recap my basic findings given my recent Listings, and my recent Buyers who have bought properties.
1. Desireable properties, in desirable neighborhoods are flat at worst, with some areas up from last year, and some properties still getting multiple offers. Although it's usually 3 to 5 offers, not 10 to 30 offers.
2. Undesirable properties, in undesirable neighborhoods have taken a beating.
3. Areas like South Beach and SOMA where new construction continues to go up, thereby continually increasing supply is a unique area all to itself. It still looks like a stand off to me. Enough buyers are buying to keep prices from falling, but the inventory is growing every month with Seller's choosing to just wait for the right offer without dropping the price. I estimate a 3 to 4 month supply of homes for sale right now, which is very high for San Francisco. Then again, 6 months is what the experts say is the dividing line between a Seller's market and a Buyer's market. But my feeling is we may jump up to a 6 month supply in September since many Seller's wait out the Summer before listing their homes. If that happens, Seller's may blink first, and prices would start coming down.
4. Even if South Beach and SOMA come down in prices, I still don't see that effecting the very pricy north eastern part of the city, or neighborhoods like Noe Valley where there is next to no new supply. Demand is still higher than supply, and well priced homes are selling quickly. Plus there are still a ton of buyers on the sidelines just waiting for these areas to drop so they can get in. So if it were to drop, these buyers would prop it right back up.
Finally, interest rates have remained steady right around the 7% market, and as long as they don't go up further, there is no new pressure on prices.
So is it a good time to buy? Well, that depends. Not if think you'll get the same kind of crazy price appreciation of prior years. But it is if you want to buy and hold for at least a few years. Buy in a less desireable area, and you've got your bargain at 10% to 20% below last year - you can wait for the next crazy market to prop up prices. Buy in a more sought after higher priced area you will still pay a premium, but at least you don't have to fight to buy it against 10 to 30 other offers. Don't expect these areas to drop, so if you want to own a home, now is a good time to buy.
Stay on top of the market at www.SF-MLS-Search.com and email or call me if you're looking for more help.
1. Desireable properties, in desirable neighborhoods are flat at worst, with some areas up from last year, and some properties still getting multiple offers. Although it's usually 3 to 5 offers, not 10 to 30 offers.
2. Undesirable properties, in undesirable neighborhoods have taken a beating.
3. Areas like South Beach and SOMA where new construction continues to go up, thereby continually increasing supply is a unique area all to itself. It still looks like a stand off to me. Enough buyers are buying to keep prices from falling, but the inventory is growing every month with Seller's choosing to just wait for the right offer without dropping the price. I estimate a 3 to 4 month supply of homes for sale right now, which is very high for San Francisco. Then again, 6 months is what the experts say is the dividing line between a Seller's market and a Buyer's market. But my feeling is we may jump up to a 6 month supply in September since many Seller's wait out the Summer before listing their homes. If that happens, Seller's may blink first, and prices would start coming down.
4. Even if South Beach and SOMA come down in prices, I still don't see that effecting the very pricy north eastern part of the city, or neighborhoods like Noe Valley where there is next to no new supply. Demand is still higher than supply, and well priced homes are selling quickly. Plus there are still a ton of buyers on the sidelines just waiting for these areas to drop so they can get in. So if it were to drop, these buyers would prop it right back up.
Finally, interest rates have remained steady right around the 7% market, and as long as they don't go up further, there is no new pressure on prices.
So is it a good time to buy? Well, that depends. Not if think you'll get the same kind of crazy price appreciation of prior years. But it is if you want to buy and hold for at least a few years. Buy in a less desireable area, and you've got your bargain at 10% to 20% below last year - you can wait for the next crazy market to prop up prices. Buy in a more sought after higher priced area you will still pay a premium, but at least you don't have to fight to buy it against 10 to 30 other offers. Don't expect these areas to drop, so if you want to own a home, now is a good time to buy.
Stay on top of the market at www.SF-MLS-Search.com and email or call me if you're looking for more help.
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