Why Realtors are like Doctors and why you can’t Self-Medicate

Why Realtors are like Doctors and why you can’t Self-Medicate

The main purpose of this article is to draw an analogy between Realtors and doctors in the sense that both are professionals and that we should consult with them regularly for expert advice. If you believe we need expert advice from doctors, then so too do we need expert advice from Realtors.
This article has an apologetic tone to it for many reasons. The first is that the increased transparency of homes for sale empowers consumers to research homes in advance. This allows a more informed user. The same has happened for medical issues being available online. People can search for their symptoms and try to make conclusions about their health from their research.
If you have ever had symptoms and used search engines to identify what you could be suffering from, you can imagine it is a terrifying process. It is terrifying because there are so many uncertainties involved about self-diagnosing that we don’t have enough empirical knowledge or the background knowledge to come to a definitive diagnosis. So what do we do? We end up either acting on a false belief or we set the appointment with the doctor.
If we do the former, we do a self-medication. Suppose we had a viral infection and we think we have a bacterial infection. And suppose further that based on our false belief, we take antibiotics, hoping the infection goes away. Since antibiotics don’t work against viruses, we’re left with all the side-effects of taking antibiotics without the benefit of the cure.
So now let us return to the topic of real estate. When first time home buyers or not savvy persons of real estate think it is good idea to buy or sell the house themselves, it’s clear that they have their own best interests in mind, but it’s not clear that a professional has their best interests in mind. When the buyer/seller is self-represented and the other party has representation, the unrepresented party might ask help from that professional, but there’s no guarantee that that agent will help the other party out of generosity or other virtues.
I have had many sellers with whom I fill out forms, and it is sobering to see my sellers skip or flat out omit information on their disclosures because they don’t want to disclose something. They fear that disclosing something might lower the final price of their home. And they may be right. But when the property condition is not what the other party thinks, it’s a no-brainer that the price reduction in disclosing the material fact is far cheaper than the cost of damages in a lawsuit for the failure to disclose.
Putting the legal aspects aside, the seller/buyer needs to do the right thing and disclose the material facts of the property. The professional Realtor is there to make sure that happens.
I can’t stress enough how important the counsel of a real estate professional really is. A 30 day close requires a lot of coordination and precision among the parties and many things can be missed as a result. A do-it-yourselfer might try selling the house themselves, but any delays in the process could be costly, resulting in per diem fees owed to the other party.
In any event, I hope I have drawn the analogy well between Realtors and doctors and I hope you will find the time to consult your professionals as needed when the time comes.

The Most Important Thing to Do Before Looking for a House

The Most Important Thing to Do Before Looking for a House

Today, we live in a culture where information arrives instantly at our fingertips. Information about homes for sale is no different. Anybody can look at a house, whether they are old, or young, rich or poor; the information is available for anyone.

Now let’s think about only those people who are qualified to buy a house. Chances are they have large cash reserves or the minimally decent down payment needed to purchase. But even they might shop for a house without doing the most important thing they need to do.

So what is the one thing that is so important? The answer is simple: finding out your max price. Your max price should be known to you. If you are getting a loan, your max price is determined by your loan advisor and it may appear on your preapproval form. Your real estate agent will also have knowledge of your max price, even though you might think it is confidential information.

Why should your real estate agent have this information? She should have it because it places a cap on the searches she will do in finding your house.

Is your max price confidential information? Well, yes, it is, and it should not be shared outside of those trying to work in your best interest. That is why your loan advisor knows your max price, your real estate agent knows your max, your significant other knows your max price… and that’s about it. For everyone else, like the seller you are trying to buy from, you do not reveal your max price to them, for obvious reasons.

To be sure we are all on the same page here, the max price is your down payment plus your maximum possible loan amount you qualify for. If your preapproval letter shows your maximum loan amount, that is not your maximum purchase price. If you see that, add your down payment to determine your maximum purchase price. That is when the search truly begins.

Many of my clients ask me: “Let’s see property first and then I’ll get qualified.” Denying my clients of this suggestion might insult their reputation and pride, especially if they make it clear to me if they have the means to purchase property. So what do I do? For repeat clients, I usually oblige them and tell them that we can see property first and get qualified later. For newer clients, I have to stick to my guns and tell them that you must get qualified first.

Why do I stick to my guns? The answer is twofold: the first is that I am a professional. While the client calls all the shots for decision making regarding the purchase of the house, it is my responsibility to create the conditions that make success porrible.

The second answer has to do with time. I respect my clients’ time as well as my own. If we see properties without establishing the price range or qualification, period, then we are wasting time out on the field looking at properties the client does not qualify for. In fact, I have had many overqualified clients looking for property, only to learn that they have auto loan debt they forgot to pay down, student loans they did not touch for years, or other debts that may hinder their ability to get credit.

So when these issues are identified early, what can they do? They can fix them early when there is time to do. What happens if the issues are not addressed right away and the client insists on looking at property? The results can be disastrous, and let me explain why.

Imagine finding the house of your dreams but you are not yet qualified to purchase on a house. Because many sellers impose deadlines for offers, you are now against the clock in getting qualified for a loan. This puts pressure on the loan advisor and added stress on everybody. After getting qualified, now imagine that your max price is less than the listed price of the home you love, and let’s assume there are multiple offers out there on the house already.

From this case study of being underprepared to offer for a house, we see that the origin of the problem was not knowing what the max price is for a house before shopping.

So in summary, we learned that finding out your max price before house shopping is like putting the horse ahead of the cart—it is the smart way to go.

Why Realtors Need to Stop Bashing Automatic Valuation Models (AVMs)

Automatic Valuation Models are algorithms made by companies in order to value millions of homes simultaneously for the sake of providing users with a ballpark figure of how much a house is worth. Typically, nearby homes are used as part of the model and recent sold homes of similar size are placed into a sort of equation that spits out a value that persons can use to estimate the value of the house.

Recently, it is often found in the media that people like to bash AVMs, saying they are inaccurate. I will now investigate why people think this, what role real estate agents play in this, and how we can use AVMs to our advantage.

AVMs have to value millions of homes in a short period of time. You can imagine right away that an endeavor like this will have a higher margin of error versus a real estate agent who will sit down for 2-3 hours to pound out a competitive market analysis (CMA) in order to find out accurately a good list price for the home.

Nevertheless, AVMs still have their place among users who need a quick number when an expert is not available. If someone views ten properties in a particular area and there is no recent sold history, an AVM will step in as a good way to understand the values of that neighborhood. From there, it can be a stepping stone or conversation starter with a real estate agent to find out exactly how much a particular home is worth.

We have now established that AVMs serve a purpose when experts are not available and can be used as conversation starters with real estate agents who can either affirm or deny the findings. We understand that real estate agents are there to verify the AVM’s work. The AVM could be accurate or inaccurate. Its inaccuracies exist in two forms: overvaluing or undervaluing. Whatever the situation, I think professional real estate agents perceive the AVM as a viewpoint that needs to be considered carefully as part of the overall picture of the house. If the general public has access to the AVM and the real estate agent vehemently denies its credibility, then real estate agents and clients cannot see eye to eye on a fundamental level that could cause rifts in the relationship later on in critical junctures of the transaction.

That said, the real estate agent should be charitable to the AVM and determine how the AVM came up with that value. If the AVM is inaccurate, the real estate agent owes the client an explanation of why that is the case. If possible, the CMA should include the AVM as part of the analysis to see where the AVM falls. It could be the case that the AVM falls within the possible market price of the house and it can be credited as a secondary source outside of the real estate agent to justify price.

Imagine if a seller is having a hard time pricing down a listing. An overpriced listing will remain on the market and have sluggish activity—consequences that can eventually be traced back and blamed on the real estate agent. Now imagine that the real estate agent consulted the AVM beforehand and included it as part of the listing presentation. And suppose further that the AVM convinced the client to list the price at a lower price that could allow for more offers (assuming the AVM did come lower as the real estate agent had wanted). The results are beautiful. The real estate agent can refer to another expert opinion—the AVM, to determine that somebody other than herself believes the price should be at a certain threshold, and the seller now has to consider this information wisely.

How will a seller perceive the AVM? Well, if a seller is frequently on her favorite website and that website is informative, then it could be the case that the AVM is well-trusted based on the prior relationship the seller has with that website. Instead of working so hard on earning the seller’s trust, why not confide in the site’s credibility which will allow the real estate agent to beeline directly to the seller and share with the seller the credibility that exists between the seller and the website? Credibility by association is useful here and there’s no point making an enemy of the website if the seller swears by that real estate website. Because you know what they say: the friend of an enemy is also an enemy and a friend of a friend is also a friend. So befriend your seller and befriend your seller’s real estate website, within reason.

Client Question Series: As a buyer, do I need to pay my real estate agent?

Thank you for the question. The answer is no. For residential and some commercial purchases of real property, you do not need to pay your real estate agent separately in order to purchase a house.

The main reason for this is that it is customary that the seller pays the commission on both the listing side and the selling side. It is important to understand that the seller pays this directly from the proceeds of sale. The agreed upon commission is negotiable and the seller has many opportunities to verify the commission of the sale within the body of the listing agreement. The buyer benefits from this agreement because the seller is paying the commission.

Some say that the commission raises the price in home sales and that the buyer is effectively paying the commission because the buyer is paying the full purchase price. While this may be true, the seller cannot afford to artificially raise the price of the home to cover the cost of the commission. It is important to remember that the home will sell for what the market is willing to pay. If the seller raises the price to cover extra costs, ceteris paribus the home will not sell.

Reflections on the Zillow/Trulia Merger by a Seasoned Realtor

Introduction

To the seasoned, well-affiliated Realtor with hundreds of clients in her pipeline, the Trulia/Zillow merger is just another business move being made between publicly traded companies; it is an incidental headline on the homepage of Yahoo! Finance while sipping one’s morning coffee.

Successful Realtors move with the currents and stay afloat in rapidly changing times like these; they possess timeless and fundamental skills in customer service, follow up, and local expertise that keep them constantly in the mind’s eye of their client base.

Heraclitus of Ephesus remarked that one cannot step in the same river twice. So too do we find the real estate industry constantly changing, demanding vigilance and adjustment when needed. Even veteran Realtors need to adjust to the changes; no one is immune to the ever-changing frontier.

However, for the newer Realtors of the industry, the merger could mean something different. Newer Realtors need to organize their schedule and decide on paying or not paying for advertising commitments. It is critical that they execute the best choices in filling their pipeline with quality deals; newer Realtors need to buckle down and carefully survey this new, technological landscape and pick out what works for them.

Several weeks have passed since the Zillow/Trulia merger and the business move has set the internet ablaze with speculation over the consequences of the two largest real estate websites coming together.

In this article, we look at the possible consequences of the merger in relation to the real estate market and discuss what new agents can do to make sound choices in advertising. We conclude by discussing Zillow/Trulia’s business model to determine whether Realtors are still in control of their marketing efforts. We find that they are.

The Main Concern

Let us start with the main concern: Some say the merger could result in anti-trust violations. This may include “per se” illegalities such as price-fixing between Zillow and Trulia that could increase the cost of advertising to the Realtor. Some argue that the increased cost will be passed on to the consumers and will create an undue burden on the consumer.

Responses to the Main Concern

In response to this concern, it is very possible that advertising prices could rise as a consequence of the merger, but price-fixing may not be involved because Zillow and Trulia continue to remain as separate companies, but Trulia now reports to Zillow on a regular basis to come up with new strategies. The difference in the benefits they can offer Realtors will vary their pricing, so price-fixing is possible, but unlikely.

While their intra-company intelligence has improved and overhead lowered, the responsibilities of choosing which real estate advertising to go with as part of one’s marketing mix largely remain unchanged. In other words, we need to value the Realtor’s autonomy here. The Realtor still calls the shots of how much advertising budget should be spent yearly.

If the merger causes advertising costs to increase but yields enough new business to turn a profit after expenses and paves the road for repeat business, then it is clear that the Realtor is voluntarily consenting to the increased advertising costs because it is valuable. If at any time the advertising is not working, the subscription can be canceled and the costs can either be refunded if the Realtor is persuasive enough or the sunk costs can be absorbed and become tax deductible. “Nothing ventured, nothing gained”, as some might say.

The second response to this concern is that these costs will be passed on the consumer, however I find this to be unlikely. Repeat business is rewarded to the tireless, professional, and ethical efforts of the Realtor who helps to achieve her client’s goals. Any ethical Realtor will not pass her advertising costs to the client because it does not create a good environment for repeat business.

While some Realtors may provide additional services separately for a separate fee, such as staging or cleaning, those fees are justified and transparent. By taking advertising costs and masking it as another fee, the Realtor puts herself in red flag territory. What is this extra fee on the final HUD and Good Faith Estimate and won’t the lender and escrow have something to say about it? I’m not even sure how Realtors can pitch the fee to a client: “Oh by the way, Trulia helped me find you but it cost me more money. Do you think you can pay it? Or how about we go halfsies on it?” How unreal!

It is possible that the client will often place her trust in the Realtor and overlook the fee, but if the additional advertising fee is questioned by the client and the Realtor cannot give an adequate answer, the bond of trust between fiduciary and principal can be undone rather quickly.

Is the Advertising Fee Overpriced?

So are Realtors getting squeezed by real estate online advertisers trying to make a quick buck? I think it is OK to have a healthy skepticism about the merger, and their advertising solutions sold at a premium may not be the shoe that fits all, but we cannot avoid the fact that site traffic for these sites accounts for about 48% of all site traffic for real estate searches on the web.[1] That kind of site of traffic is valuable and Realtors can pay for value that yields them more business.

We are sometimes tempted to take a commission check and subtract away the advertising costs required to procure that commission. If we do that, then clearly the merger has decreased the net income of the Realtor. But there is more to the analysis than that. The advertising can also provide repeat business and word of mouth that will get more business into your pipeline. If we consider these sources of business, the advertising becomes more and more attractive.

Before we move on, let me say this: I am not defending price increases of Zillow/Trulia, but I do believe they have a valuable product that Realtors can use. Some Realtors pay for advertising online, only to have the company tell them proudly that 300 (un)qualified visitors looked at their profile, but not a single one sent an email or a phone call. When something does not work or will not have long-term payout, it is time to get out. But if something works, it is time to milk it. There is some internet gossip out there that Zillow/Trulia is more promising than the rest. But don’t listen to me; look around and see for yourself.

What Should New Realtors Do?

New Realtors need to make a decision about whether to purchase advertising from Zillow/Trulia or not, even if it will be at a premium. When just starting out, a new agent has 6 months of reserves in her bank account to pay for business and living expenses. Every penny counts. Performing an all-out advertising campaign on Zillow/Trulia could be costly, but it could be the push one needs to become the go-to agent of that particular service area. New Realtors need to check their Zillow/Trulia leads regularly, see how many people check their profiles, and see what outputs were procured as a direct result from the advertising.

I think new Realtors need to be well-versed in projecting future earnings. It could be the case that no commissions will come during months 0-4, but maybe there will be a great payday in month 5 that will make online advertising worth it. In those first few months of uncertainty, experimentation is a must. New Realtors need to handle and cope with the pressure of being in the red for a few months, focusing keenly on the light of the end of the tunnel that will reward their efforts.

Going Low Tech; Returning to the Fundamentals

For those who will not dabble in Zillow/Trulia’s methods to capture potential homebuyers, and for those who want their 6 months of reserves to be stretched even further, there is no shame in going low-tech and hi-touch. “Walking the farm”, or passing out fliers and knocking on doors in one’s service area could be valuable as part of the marketing mix, with free sunshine and exercise included with every outing. Those belonging to church groups or volunteer groups can flourish by helping friends who want to buy and sell in real estate.

Who Gave Zillow/Trulia Our Listings? We Did

When reviewing Zillow/Trulia’s merger and its consequences, we recall the not-so-discussed origin of the success of their business model: us. At the bottom of every MLS input sheet, we place checks in boxes that ask us if we want the full address of our listing to appear on the internet.

To many Realtors, it is a no-brainer to check all these boxes because we care about the listing getting maximum exposure on all media platforms—including the internet. Excluding the listing from Zillow/Trulia calls into question whether we are servicing the listing properly and acting in the best interests of our client (the same argument is used for pocket listings). In short, we are indebted to these websites for giving Realtors more outlets to market the listing, and these websites are indebted to us for feeding them listings which gives them exceptional site traffic.

Conclusion: Everybody Wins and We are Still in Control

Our client’s desire to receive maximum exposure on the listing to get the maximum sale price and Zillow/Trulia’s promise to “empower consumers with information and tools to make smart decisions about homes, real estate and mortgages”[2] are consistent with one another. The two work hand in hand and Realtors can take advantage of this technological frontier without sacrificing their duties as a Realtor. Our relationship with Zillow/Trulia is not parasitic, but symbiotic. And even after the dust has settled after the merger, we Realtors are still in full control and in the driver’s seat of our marketing efforts, whether they are offline or online, or both. We are still in control of the marketing mix in a world where Zillow and Trulia have merged.

[1] time.com/money/3047329/zillow-trulia-merger-consumers. Accessed August 16 2014.

[2] http://www.zillow.com/corp/About.htm Accessed August 15 2014.

California Drought and a Better Garden for Americans

(source: www.jchfirm.com)

It is great to learn that Home Owner Associations will not change Californians for not watering their lawn. Have you heard the latest rulings? They were in conflict with each other, but now they are resolved. The first ruling was that Governor Brown passed into law a fine for $500/day if somebody overwatered their lawn.

(source: cadreamnetwork.org)

It’s not clear how much water that is, but one clear idea is to make aware those absentminded homeowners who will turn on the sprinklers and completely forget about them. We’ve all seen it from time to time– the sidewalks get just as much water as the grass. The water drains into the gutter in the street and we can hear it cascading down there, right next to the little stamp that says “Don’t Dump in Our Bay.”
So while many lawns are becoming brown, many HOAs began charging homeowners for not keeping up with the watering of their lawn. That was precisely the tension the new laws are trying to address: that HOAs cannot charge homeowners fees for not watering their lawn.

(source: article.wn.com)

The priority of conserving water exceeds that of keeping the neighborhood beautiful. In other words, the utilitarian consideration of water conservation trumps the aesthetic needs of the community.

(source: decodedpast.com)

One can make the case that watering lawns are important for property values, but you can only make that case if you put the home values outside the context of the drought. The drought comes first and everything else comes second.

(Source: spraysite.net)

Emerging now are many companies that will offer to spray your lawn with green paint to make it look like your lawn is green. The effect is temporary, lasting anywhere from a few weeks to half a year. Is this a good product?

 

I think it is a good product, only to accomplish very specific goals. The first is that people use it to sell a house and to give it more appeal. The lawn will be greened only so far as to increase the curb appeal of the property. It should be fully disclosed to the buyer that the lawn was painted, much in the same way it is disclosed that the furniture and window treatments for staging will not stay. If the buyer consents to it, then you have a happy seller and a happy buyer.

That’s one way to use it. The other way to use it is for agents who need a lawn to look green to avoid being flagged by cities or HOAs. Now that HOAs cannot charge a fee for it, this use will probably go down, but there’s no telling if a city can fine an owner of land and say it is a fire hazard if the grass is too dry. My opinion is that the city will not do this.

Honestly, I don’t think the media has caught on to the other possibility that our lawns are not water-friendly to begin with. Nobody really disputes it because part of the idealized form of houses is the white picket fence and the lush, green lawn. Nobody thinks of low-water consuming geraniums and red wood chips when they think of the perfect house.

 

In other for us to truly survive this drought, we need to divorce the demand for green lawns away from the ideal form of the perfect house. When we do that, we can see truly that grassy lawns are too high maintenance for an area that is low on its water supplies.

 

I was reading a feature story that commented on how persons who live in Australia are constantly in a season of drought and that they probably do not have grassy lawns. Instead, they have low maintenance gardens and rain collecting barrels that collect rainwater from their gutters. That water is later used to water plants.

(source: www.pondsonline.ca)

I know Alameda County used to give rebates to homeowners who design their front and back yards to consume less water, so the message has been put out there. While the rebate can be offered again, I think the greatest motivator for people to get rid of their lawns is to bring to people’s attention the ecological drawbacks that it possesses and to urge people to have gardens that guzzle far less water.

(source: www.califliving.com)