Buying and Selling: December 2011 Archives

The first thing you need to understand in reading any property advertisements is that agents write them to get people to call. They are trolling for clients, not sales. Except in the case of someone who doesn't accept dual agency advertising a listing they actually have, they are written purely with the idea of dangling something out there that clients want. Since most agents like dual agency just fine because it means they get paid twice for the same transaction, understand that only a tiny percentage of the ads that are written out there are written for any purpose other that to get potential clients to call.

Keeping this fact firmly in mind, there are two sorts of places where people go to search for property: Some that are based on MLS, and others that are not.

If it's in MLS or coming from MLS, it better be good information. I can (and do) file violations on liars in MLS. So do others - every time somebody wastes our time by saying the property has something that it doesn't. Filing violations in MLS is simple, it's effective, and after a certain low number of violations, the offender's input access gets restricted. They can't put properties in MLS and they might as well be out of business. Note that they can still "puff" a property significantly; but number of bedrooms, square footage, anything with a number or a yes/no associated with it had better be right. The big violation I'm finding most of recently is advertising it in MLS as "fee simple" when it should be either "PUD" or "Condominium". If it's got homeowner's association dues, it's not fee simple - end of discussion. It may be single family detached, but it's not fee simple ownership, as that homeowner's association has rights with respect to the property.

Everywhere else, everything that is not based on MLS, take all advertisements with a respectful amount of caution - Like at least equal in weight to the building. Once you get outside the domain of MLS, there are few sanctions possible for even the most outrageous puffery - or even advertising a property that does not, in fact, exist. Or anything remotely similar. Some agents won't put anything out there that isn't as close to gospel truth as they can make it, but others are not nearly so fussy, and you really want to avoid the latter sort.

Non-MLS based property advertisements may now be pending, it may be sold, or it may in fact never have existed. The agent put that ad in trolling for buyers. What they want is your signature on an exclusive buyer broker agreement, so they can lock your business up. Readers here know you shouldn't sign exclusive buyer's agency agreements, because that's a poor way to get a good buyer's agent, but most people don't know that and most agents are laying in wait for the ignorant.

A good buyer's agent can help you debunk the nonsense. Quite often, I have clients who should know better, as I've explained this to them - often more than once - ask me about this fantastic possibility they see from site not sourced in MLS. About as surprising as gravity, they turn out to be in some way non-factual. Claiming 2 bedrooms when it's really one, or four bedrooms when it's really two. 1 bedroom when it's really a studio or loft. And sometimes, they actually had it, at that price, six or ten years ago. And then I call the agent listed on the ad, look it up on MLS, and voila! the deception becomes apparent.

There's nothing wrong with responding to such ads, and there's nothing wrong with working with the agents who advertise them, so long as you limit yourself to a nonexclusive agreement, so you can get rid of them when it become apparent they're not guarding your interests. But even with a non-exclusive agency agreement, I'd be asking myself "If they lied to get get me to call, what else are they going to lie to me about?"

I just had a client send me three prospects from one of the non-MLS based search services. All three of them were non-existent, posted by a lead generating service as bait so they could sell everyone who responded as a lead to agents. They didn't have such a property, they never did have it, it wasn't even for sale, and hadn't been for over 10 years. But that's how they get leads, which they then sell to several agents.

Here's another sneaky trick: Services advertising themselves as foreclosure specialists go around to all the properties that have a trustee's sale happen. They illegally put a sign in the yard, relying upon the fact that the property is vacant, directing passersby to a phone number. On the phone number, they put the puff description from whatever the last time was that it was in MLS, whatever they can see, or something they can pull from assessor records. They say they have an exclusive listing. What they really have is nothing. I've tried contacting lenders before their new lender owned property gets listed. Even if I have a buyer willing to make an offer, they usually don't want to hear about it. What the places who claim they've got "foreclosures before they're listed" are doing is trying to get suckers to call - in other words, trolling for clients. They simply know that the lenders are eventually going to put 99.999999 percent of these on the market within a few weeks, and they can fend you off until then. They aren't offering anything real. They don't have anything real. They are doing nothing beyond trolling for clients who will generate easy commission checks. They don't have to even sell you that one. If they had anything real, when I call for a client they should be falling all over me, like the agents that really do have foreclosures. Those agents who really do have lender owned listings are falling all over themselves to get back with me. The troll services take my information and say, "We'll have to call you back," and they just don't. I call again, they do the same thing. I ask who's the listing agent responsible for a property and what number to call to contact them, they don't have an answer. Then it comes up on the MLS, and the agency that's been advertising it is nowhere in sight. This is different from people who are buyer's agents who have legitimately gone out and found bargains - because they'll tell you they want to act as buyer's agents. In the first case, they are claiming to have a listing that they do not, in fact, have. In the second case, they are claiming to have found a bargain, and are telling you quite straightforwardly that they are looking to represent buyers. that's what I do. But when you're acting as the agent for the seller, you're not supposed to say anything that violates a fiduciary relationship - in other words, a listing agent is supposed to pretend this property is the greatest bargain since the Dutch bought Manhattan, or at least as close as you can realistically get. It's in the job description, not to mention the contract.

So be aware before you respond to property advertisements that quite often, the property advertised doesn't exist. To avoid leads services, look for specific names of the agent in the advertisement. To avoid problem agents who require an exclusive agency agreement before showing, simply refuse to sign exclusive agreements. Dual Agency is a very bad idea for buyers (and it's not good for sellers, either). If they have the listing, they're going to get paid when the property sells regardless of whether you signed that agreement. If they don't have the listing, they still risk nothing with a non-exclusive buyer's agency agreement.

Caveat Emptor

Original article here

Listing Agents say they hate it when prospective buyers (of their listings) make offers on multiple properties, but they keep doing things to encourage it.

It is both legal and simple for buyers to make multiple offers. All I have to do is include some phraseology about this offer will be withdrawn in the event of the acceptance of another offer. Listing agents do the equivalent thing every time they negotiate multiple offers. At least they do it if they are hardworking and smart, rather than asking everyone for their "best and highest offer," a lame, weak technique that has precisely one advantage - minimal labor for the listing agent. But it should not surprise anyone that if listing agents can do one thing, buyer's agents can respond by executing multiple offers, especially where sellers and listing agents miss deadlines to counter, take weeks to make up their mind, don't respond to requests for information, and have to be goaded into responding at all.

A single offer is stronger for both buyers and sellers. For buyers, it says that you have singled out this one property to make an offer on. You want this one, at least if the seller can be dealt with on a reasonable basis. It says you aren't going to flake out or abandon them mid-negotiation because you have found something you like better, and if you come to an agreement, you're not going to abandon that agreement without reason. Someone making multiple offers cannot claim any of this. For sellers, all of these are valuable features of an offer - perhaps more valuable than an extra $10,000 on the offer. If your agent doesn't understand this, that's a problem.

Furthermore, encouraging multiple offers encourages both lowballing and uncommitted buyers who don't care whether they buy your property or not. There's not much emotional buy-in, but many buyers will throw out a low-ball for marginal properties just to see if they get a response. But even if you do respond to such offers, they're not going to turn into the kind of offer that makes sellers happy.

For all the complaints about multiple offers I hear, though, listing agents seem to keep doing things to encourage them. Sitting on offers for weeks is a bad idea because buyers will move on. Sitting on purchase offers without response for six weeks or more. When the sellers finally respond, the buyers are already in escrow on something else. About a month ago, I got a response three weeks after the offer, two weeks after deadline to respond, during which time the clients decided they wouldn't be happy in the property after all. Agents who delegate unlicensed assistants to check boxes on offers are a definite turn off, as well - those assistants have no idea what is a good offer and what is not. They have never seen the property, they have no idea of the market it sits in, no real clue as to general market activity - and if the agent doesn't have their hands on the situation pretty constantly themselves, neither does the agent. When I call an agent phone number in the listing, and there is literally no way of talking to the agent, or for that matter, any actual living person, that's a situation for a throwaway multiple offer, if anything at all. They're not taking prospective buyers seriously. Put in a lowball multiple offer, if they respond in a timely fashion, great. Otherwise, let's move on with our lives.

If you want buyers to make single offers, you need to respond to them promptly and individually. You need to take the time to understand the offer and the strong and weak points, and you have to understand how it matches up with your clients needs. This takes time, and it takes an agent who knows what they are doing - not a clueless unlicensed part time receptionist who is filling in boxes. This means that in order to get the most mileage out of the offers you get, you have to have a listing agent who has the time to spare for this particular listing. The corporate transaction mills are not the way to get that. There are many reasons I advise people against so-called "top producers," and that is only one of them. If you want the best possible price, you need an agent with the ability to invest enough time in your property to make a difference. Yes, I use loan processors and transaction coordinators. They're not allowed to interact with my clients, and they don't even enter into the picture until and unless we've got a full loan package ready for submission or a fully negotiated purchase contract. They're there to dot the i's and cross the t's - taking care of the routine fine detail work that most clients never know about - not so I can disengage myself from the transaction.

If the agency real estate office is doing everything they can to take as many listings as they can, to the point where the agents cannot properly service those listings, that's a situation where you're begging for multiple, weak offers. I put deadlines to respond on every offer I type. Reasonable deadlines, minimum of three business days, perhaps five, to give the other side plenty of time to respond. Most of my buyer clients have time pressures. They don't have three weeks to wait and see if one offer responds, after which they wait three more weeks to see if another offer responds, when they're operating under any kind of a deadline. I'm working with a client who's being posted here from elsewhere a couple months from now. When we started looking , even a short sale was a legitimate possibility, which should surprise you given my general opinion that buyers should avoid short sales. Inconsiderate listing agents trying to service too many listings have eaten most of the time we had to play with, causing us to now be in the situation of needing to make multiple offers on multiple properties. Buyer degree of attachment to any given property: small. Buyer willingness to negotiate on any given offer: small. Buyer willingness to offer an attractive price in such circumstances: small. And these "top producer" megaoffices listing these properties are wondering why, despite the incredible numbers of offers being made, they're not getting the kind of increases in value we saw a few years ago? Why the offers are all petering out at a low level? Why prospective buyers who do get accepted offers are so likely to bail out on the deal? Why actual sales prices aren't increasing?

Many listings want to accumulate offers for weeks. I've read several listings that say things like "no offers will be evaluated until (two weeks from now)." Okay, if we like the property, and nothing else catches our eye, we'll consider making an offer just before then. Keep in mind, it'll be ten days between when my client saw the property and when they make their offer, it won't be a hot "right now" offer or even a lukewarm "next day" offer. It'll be a multiple offer - only fair, since that's what the seller is asking for. And if my buyers find something else in the meantime, well, there won't be any offer made at all.

Let me ask: what happens when your best offer - most often the first, almost always one of your early ones - has moved on with their life? For that matter, what happens when all the good offers have moved on with their life? You're stuck with the low-ball offer from a flipper, that's what. I'd hate to be in a situation where I told my listing client there were 8 offers - but only the lowballs were still interested. But that's what these agents are setting themselves up for.

If there are competing offers and one of them isn't nearly as attractive as another, there is no harm in saying so, and saying so quickly. Either they will drop out of contention or they will increase the attractiveness of their offer. If they increase their offer, my client is happy. If they drop out, my work with them is done, and they're now out there looking at other properties. The quicker I answer, the more likely it is that this prospective buyer will respond with a better offer. I'm perfectly willing to fax over (slightly redacted) first pages of competing offers in such situations where their offer isn't even close.

Every offer needs to get a timely response, whether it's a rejection, a counter, or an acceptance. This is not only common courtesy, but good business, and the best way to end up with a good price on the final contract, one that the buyer is both willing to and capable of meeting promptly.

Negotiate with each offer individually. Asking everyone for a "Best and Highest" offer is very weak. Any buyer's agents that are worth a damn know how to respond to that one. Individual negotiations (if you happen to actually have multiple offers) works wonders. Put the multiple offer disclaimer on it if it's appropriate, and slap it back to them same day if you can. Keep the negotiations hot. Keep the buyer's memory fresh. Increase the buyer's mental buy-in if you can. This is labor intensive, but it leads to happy clients, bigger paychecks, and more clients. I don't see how anything else can be more important than those three things for an agent. I don't see how anything can be more important than just creating happy clients.

Encouraging multiple offers by acting like you don't care about prospective buyers is a good way to be forced to settle for less money than you could have gotten. I don't encourage it, I don't recommend it, and I very definitely do not practice it. I don't understand those agents and sellers who do. You get the buyers you deserve - the desirable buyers you earn by treating them correctly. Give them respect, give them attention, negotiate with them as individuals, and one good, seriously interested buyer is all that you need to get a good price for the property.

Caveat Emptor

Original article here

This is one of the hardest things to get across to many people - agents included. A property with a fully negotiated purchase contract is not one you can buy. They have a legal agreement binding them to sell it to someone else. If they sold it to you, they could be sued for what is called "specific performance" - in other words, do what you agreed that you would do - and I am given to understand that you don't want to be on the losing end of such a suit.

You are wasting your time making an offer that the owner is not free to accept. I would actually argue it's worse than that: You're effectively trying to bribe someone into not meeting their contractual obligations. If your terms are worse than what they have now it's not a very effective bribe, but you're still making the attempt. If you were in the position of the accepted offer, how much would you like it?

Nor is a so-called "back-up offer" likely to get you the property on any kind of advantageous terms. Watch the property in MLS and see if it drops back to "available" rather than pending, but making a back-up offer will do nothing but weaken your negotiating position if that property should become available again.

There are ways to get out of accepted contracts. The classic one in non-performance of the other party. The other side doesn't do what they said they would do - they go past the agreed upon escrow period, they can't qualify for the loan, whatever. There are as many ways to fail in contractual obligations as there are contractual obligations. Neither side is required to cut the other side one iota of additional slack beyond what is spelled out in the contract.

With that said, if the contract isn't one you want to honor, why in the heck did you agree to it? If it doesn't put you into a better position, why did you agree to it? The only reasonable response to this that I'm aware of is "It is better than no deal, but then someone came along and offered a better one" To which the person on the other end of the negotiated contract will reply, "too late." They have now spent significant resources towards honoring their end of the deal you agreed to. If you hadn't made the agreement, they wouldn't have spent the money for appraisal, inspection, etcetera. None of these transfer to another property.

As a final word on the subject, it is possible that some agents will tell you a property is under contract when it is not in fact under contract. Perhaps they're finalizing the last few details and it's really essentially true. Sometimes, there isn't an offer at all and the agent is simply filtering out offers they see as undesirable - usually from the point of view of a bad agent rather than that of their client, the seller. Unfortunately, what all of these possibilities have in common is it's rarely worth paying a lawyer to fight about. Let it go - there are other properties just as good out there, where nobody is playing these counter-productive games.

Caveat Emptor

This is a right given to buyers agents by my local MLS, and it's a good one, that I like to take advantage of whenever it is practical. The actual property owner - not the listing agent - does have the right to refuse in writing, a copy of which must be provided to that buyer's agent.

This presentation is not intended to be an argument, and the buyer's agent is not permitted to stay for discussion of the offer between the owner and their agent. Think of it as a prepared speech. What I make is very akin to a corporate Power-Point presentation - in fact, it is a Power Point presentation on my laptop when I have the opportunity to put one together. Chances are good that you have seen dozens or hundreds of presentations basically like mine, except that I can guarantee to get done in fifteen minutes or less, providing nobody interrupts and starts arguing. The presentation is not intended to be an argument. It's a sales pitch. It's intended to make a calm, rational case why this offer that my client is making is one that should be accepted. I make my case, thank them for listening, and leave. I am not allowed to be present for the discussion of the offer, so it wouldn't be very smart of me to design my presentation as an argument. Also, it would be pretty silly of me to expect an immediate response. It would be stupid to demand one.

Many people seem to feel threatened by such presentations. My best understanding is that most of these are afraid of conflict. As I said before, however, it's not an occasion for an argument. I am not allowed to hang around for the discussion, and my presentation is geared towards being perceived as the rational thing to do when the discussion starts without me there to defend it. I don't like it when presentations turn into an argument. A presentation is an opportunity for me to speak my piece directly to the seller, unfiltered by any outside influences, so that both parties have an opportunity to gauge the mental state of each other. If the listing agent has done their job correctly, we're going to be saying the same things, albeit from a different perspective. On the other hand, if the listing agent is a problem personality who "bought" the listing, wants both halves of the commission, has their hand out behind their client's back, or any number of other unsavory problems, then a seller should be grateful to that buyer's agent for providing them with evidence to suspect such. Not to mention that presenting an offer in person is the only way I know of to guarantee that said offer doesn't go straight from the fax machine to the trash can without intersecting the seller in-between. Yes, I do know agents that I suspect of this. I could name agents I more than suspect of this - and the only way I can ensure it doesn't happen is request to present offers in person. I'm calm, I'm professional, and if I get a signed note saying the client doesn't want me to present in person, they at least know about the offer. And even if you've known your agent your entire life, "trust but verify" is never bad advice.

This isn't to say bad conduct on the part of a buyer's agent during presentations should be tolerated. If the presentation is made at the listing office or at the owner's home, they have a right to insist that I leave. If we're out in public somewhere, they have the ability to pick up and leave at any moment. It is incumbent upon me to give them reasons to keep listening.

Many listing agents feel threatened by this request. If they have done their job correctly, there is no reason for them to be, because what I'm going to say is going to reinforce the critical parts of what they should have said, thereby bringing them additional credibility in the eyes of their client. If it doesn't, well then the client has to judge the situation on its merits. That listing agent has unlimited access to the client. I have this short prepared presentation limited to one subject - my client's offer and why they should accept it. If the listing agent can't make a better case that their interpretation is better than mine, something is wrong. I'm not trying to steal their client - I want to make certain we're all on the same page. And if the listing agent has done their job correctly and I'm a bozo, well, the comparison isn't going to flatter me. So I'm motivated to get it right.

I do not agree to disclose the presentation or the offer beforehand, however. I am responsible to my client to make the presentation as strong as possible, and tipping my hand short-circuits the entire purpose of the presentation. It isn't like the seller has to come up with an immediate verbal response, as if we were in court. When I'm done, I thank them for listening and walk out. They have until offer expiration to respond - so it's in their best interest to schedule me as soon as possible. I just had a request where the listing agent refused unless I faxed over the offer first - which defeats the entire purpose of making the presentation. No. There is no reason you need to see it beforehand - unless you're trying to cover for your own lack of competence. You've got the same data I do. You can figure out precisely which comparable properties I'm going to use, and propose your own. I similarly, have to anticipate this and tell why the comparables I pick are the correct ones, and make the comparisons make sense in the real world. I have a short presentation time to make my case. You have unlimited time to disagree with me, in free format. I'm not allowed to be present for discussions unless you intentionally start those discussions with me present. If I do say something you disagree with and you can't out-argue me before your own client with all of those advantages, something is rotten in your State of Denmark. Not that the presentation is intended to be an argument - but if the listing agent insists on making it one, all of the advantages are in their corner. I can't fight either a listing agent or an owner who doesn't want to be reasonable. I can't force anyone to agree with me, to sign a contract they don't want to sign, or anything else. Actually, if someone on the other side is not going to be reasonable, both me and my client are better off finding out right away. What I can do is build a coherent rational case why it is in the seller's interest to accept our offer.

Nor will I agree to limit the subject of my presentation, at least not any further than presenting the case I need to make. I'm not going to talk politics, I'm not going to display any of the internet's famous prurient material, and I'm not going to do anything else that's irrelevant. I will cover the state of the market, I will cover which properties are and are not comparables, and I will cover why this is a good offer that should rationally be accepted. I recently had a listing agent tell me that they would only agree to let me make a presentation if I limited myself to one section of the presentation I usually give - the "my clients are good people" spiel. I could have lied and told them I'd do it. Instead I told them that their condition was not acceptable. This right was intentionally granted to buyer's agents precisely because there should be checks upon the agent on both sides, and in many cases, clients trust agents in defiance of all reason because they don't understand that the agent is telling them garbage because nobody else gets to talk to them. Whether a buyer's agent makes an in person presentation isn't the listing agent's call. They can certainly counsel the client on the subject, but the decision as to whether to accept the presentation is the client's - precisely because the agents we're all trying to get rid of are going to be the ones trying to prevent anyone else from talking to their client.

I haven't really done all that many of these yet. But the format of the presentation is pretty simple: Show them I'm a good guy, show them my clients are good people, talk about their situation. Then I segue into what the market conditions are, and the property and its position in the market. I show why the property is a good match for the client and why the client is a good match for the property by market position. I show why this offer makes sense in light of market and market position. I talk about the benefits of accepting the offer. Then I close by talking about how my client really wants this property, how well my clients qualify and evidence that they will be able to consummate the transaction - why it's a good fit all around. Finally, I thank them for listening and, assuming there are no questions, leave.

If nobody starts interrupting and arguing, it all takes ten to fifteen minutes. As I said, I'm not looking to attack anybody. Attacking doesn't get me a fully negotiated purchase contract, so it doesn't make my clients happy. What I am looking for is the opportunity to make my case in person, and present all of the evidence I want presented. The reasons it's advantageous to do so are obvious, but let me add one more: You would not believe all how often listing agents (or their clueless assistants!) do not read material that is in the offer, do not understand it, or don't understand even the most obvious implications of what is there. Some fraction of this is intentional filtering - not wanting their client to see information that client is entitled to see because it is part of the offer (this is called "intentional breach of fiduciary duty" in court filings) - while some is unintentional negligence, in that they're going through motions and making checks in boxes, and they don't pull their noses off the grindstone long enough to realize what's there in the offer and why it is important. But it is in the interest of both principals that this evidence be presented, and if the listing agent is too busy to take the time to understand the offer, they've got too many listings to properly discharge their fiduciary responsibilities to them. This is what is called prima facie evidence - "on the face of it", it is obvious that they're not properly discharging those duties. By allowing a buyer's agent to make a presentation, they are relieving themselves of a lot of potential for legal difficulty down the line, because the buyer's agent should talk about all of this stuff. That's the whole point of the presentation.

It's also an opportunity that everyone should welcome: to put human faces on the transaction, instead of just these mysteriously appearing pieces of paper and voices on the phone. It gets the buyer and seller thinking of each other in terms of being real people. It very much tends to lessen the tendency of people to draw lines in the sand and issue ultimatums, it increases the probability that this will become a fully negotiated purchase contract, and it becomes very helpful later on if we need subsequent negotiations because something new happens or is discovered about the property.

Here's one final benefit of the presentation: the listing agent has this same right to present counter-offers. I have to admit to encouraging tit-for-tat in my clients for this - if the listing agent allowed me to present, I think it's a good idea to reciprocate. If they didn't, that's not a good sign for the counter presentation or the transaction for that matter, and maybe we need to find another property not represented by such an problem personality. Whatever my attitude, it's my client's call. In the final analysis, you can't win a fight with a listing agent who is determined to be a problem personality. All you can do is avoid the fight by going elsewhere. To be fair, the same applies from the other side as well.

Caveat Emptor

Original article here

A while ago now, I saw a rather clever video someone did called, "That Last Dip's a Doozy!" Someone took housing prices 1890 to present and graphed them to a roller coaster ride. Just before the end, he turned the track around so that you could see where you had been and saw how high up you were. The thing was a work of genius; and yet it is still both misleading and wrong, in that a sense of "what goes up, must come down" permeates and becomes the basis for thinking.

In the physical world, this is correct. Gravity is a force to be reckoned with. Everything that does go up has to come back down to some sort of supported, stable resting position before it breaks down, runs out of gas, etcetera. Furthermore, roller coasters have to go all the way back to their exact starting point, or used coaster cars are going to start piling up somewhere!

The problem with this thinking is that the graph of housing prices takes place in a mathematical construct world, not on Planet Earth. It's a Cartesian Plane, not a jet plane. Indeed, if you'll remember all the way back to beginning algebra, we can choose any origin and any orientation we like, and the representations are still equally valid. There is absolutely no mathematical reason we can't choose today's prices as our origin. Are there then some sort of magical restorative forces then created that bring us back to our new origin of today's relatively high prices? Not likely! Or we could choose 1000% of today's median price as our origin. Would that cause prices to be inexorably drawn upwards by a factor of ten? Absolutely not. The concept of the origin is a useful one, but don't take it for more than it is. The prices of 1890 were the prices of 1890 because that's where supply and demand were in equilibrium under conditions pertaining at that time. The equilibrium that prices would attain today has precisely nothing to do with those conditions. Do you think we're going back to the days of the federal government selling land at $1.25 per acre under the Homestead Act of 1862? I don't, not even adjusted for inflation or cost of living. Those market conditions no longer apply, therefore there is no rational reason to expect housing prices to return to that state.

Nor are housing prices determined nationwide. We do not have one nationwide housing market. We have a mathematical amalgamation of hundreds of local housing markets. The amalgamation has its virtues and gives us some information, but don't exaggerate their usefulness. Just because some clever person draws us a mathematical picture of a roller coaster that's going to have to fall further than any material known to man can rescue it from and retain structural integrity, does not mean it has any relationship to the amalgamated real estate market in the United States of America, Planet Earth, or any of its component local markets. National prices are so high because people effectively bid up the price of living in desirable areas, and that happens because those areas are where people want to live. The flow of desire flows out of low demand areas like Freeze-to-Death, Minnesota and into high demand areas like San Diego because in a high mobility society, people will choose to live where things are pleasant if they can.

This is not to say that housing prices cannot slip further or go down. San Diego has obviously started to recover, but other areas are years behind us in the economic cycle. The forces which decide that are purely economic ones (mostly bad loans, at this point). The only role gravity plays in housing prices is in physical structure requirements, a comparatively minor component. There is no requirement to return to the mathematical origin, nor are there restorative forces pushing us in that direction.

The big factors are, as always, supply and demand. When somebody tries to tell you something questionable that has to do with economics, go back to the basics of supply and demand and it is unlikely that you will go wrong.

Supply and Demand. We've done just about everything conceivable to stimulate the demand for housing, and just about everything conceivable to constrict the supply of housing, and people wonder why houses are so expensive?

I'm trying not to be one of their folks with their heads You-Know-Where considering the consequences of people being unable to afford housing, or just barely being able to afford it. I originally wrote The Economics of Housing Development back in 2005, and I've updated it since. But blithely assuming that this whole high housing prices thing is just some kind of bad dream and that it'll all go back to some 1950s version of normal soon, is not likely to be correct and is not likely to be of benefit to those folks who are getting priced out of housing. Indeed, basically everyone is likely to get priced out of housing at some point if we keep our collective heads You-Know-Where long enough, and that will have major unfortunate consequences.

Supply and demand. Let's go over the major factors that make up supply and demand, and see the effects they are likely to have.

Consider demand first. What are the major components of demand? Population, how desirable an area is, and how wealthy the population is. Our population is growing. We just hit 200 million in 1967, and less than 40 years later, we've got another 100 million net. That's a fifty percent gain in a generation, and most have them have been added in high demand densely populated urban areas. This is a good thing for the most part, but every time we gain a person without a corresponding dwelling being built, we price someone out of the housing market by driving the price beyond what they are willing and able to pay, and the population is growing considerably wealthier in the aggregate. The average house of the 1930s was about 700 square feet. The average house being built today is over 2000. The family of the 1930s might or might not have one automobile, while the average number per family now is over two - and for smaller size average families. Clothes, dishes, appliances, vacation time, average distance from home on vacation, every standard of living has increased, faster in the last twenty-odd years than previously. A time traveler from the 1920s would have recognized more of the lifestyle in the late 1970s than a time traveler from the seventies would recognize now. In the aggregate, we can afford to pay more for a place to live, and most of us are doing so, particularly in the more desirable areas. In fact, those areas seen as desirable or scarce have led the charge up in values. Manhattan Island most of all, but southern California, Florida, southern Arizona, the San Francisco Bay area, the Sun Belt and the coastal areas in general, and of course anywhere especially handy to some popular form of recreation. The population crowds into these places especially and demands housing, as a result of which, the average price of housing in those areas rises faster, while it has more effect on the average citizen simply because an ever larger proportion of the citizenry lives in these places. If going surfing 365 days of the year is the most important thing to someone, they'll do what it takes to live where they can go surfing 365 days a year. If you haven't noticed, a very large proportion of the population seems to want to live within an easy commute of the ocean, and seems to be willing to pay whatever it takes, both in terms of smaller less desirable housing and in terms of spending more to get it. The effect causes prices to increase far more than linearly.

Now let's talk about constrictions on supply.

Sheer room. If every available square foot has already been built on, there isn't any more housing coming without demolishing some other existing building first. There aren't many areas yet where this is a real issue. We've still got lots of open space in this country, but let's consider Manhattan Island, which is completely built over. Every buildable square foot of Manhattan is covered, almost all of it more than one story deep. Prices of Manhattan real estate have been legendary for decades. You think they're coming down to what average everyday folks can afford any time soon? I'll bet you any amount you care to name that's not going to happen. The average folks get pushed out to Brooklyn and the Bronx and Staten Island and the rest of New Jersey. The well off who control or are valued by the cream of the Corporate headquarters, and get paid hundreds of thousands or even millions per year, can afford to pay, will pay, and have been paying for decades. Because those who are financially powerful congregate there, others who are wealthy want to be in the same location. It's worth the extra money to them, and they have it to pay. The demand is not only there, supply is so highly constricted despite everything that can be done that the prices are and will remain sky high by the standards of the rest of the world.

Ability to acquire regulatory approval. If the city, the county, or the state aren't going to allow it to happen, it's not going to happen. Period. It's pointless and expensive to try and force it, and very few people try any more, while every year the hurdles to get permits are higher, tougher, more expensive.

Environmental regulations have taken on a whole new life of their own since 1973. Tests, reports, studies. It can take over a decade to get approvals to build new housing, and if it fails any of the tests, studies reveal any likely issues, or people use environmental issues as a cover for NIMBY or BANANA behavior and sue in court, the whole thing goes down the drain. I happen to agree that we need environmental regulations, but they need to be re-written with more consideration that all economic choices are trade-offs, because the way they are written right now, they form an excellent basis for anyone who wants to stop any development at all to do so legally. Every time we stop a new development, the people who would have lived there need to find some other housing somewhere else. Going along the chain of A prices B out, who then prices C who is lower income than B out of lesser housing, and so on. Every time we have a new American without building new dwelling space for them, somebody is going to end up homeless, and the price of housing goes up incrementally.

Open space requirements are a big thing in California and around here specifically. Not just open space, either, but maximum building densities. A large part of San Diego County has a maximum building density of 1 building for 40 acres. Well, if you have a maximum building density of 1 building for 40 acres, the only people who can afford to buy that property are those who can afford to buy 40 acres of land. Those who could barely afford a condo - if there were condos there - don't have that option. At some point, if you have too many people competing for too few condos, the price of condos goes up to where those people cannot afford them. And if there's no buildings at all, well it doesn't take a genius to see that nobody can afford to live there, unless it's under a bush or in a tent.

Many building materials have become much more scarce of late, as it's getting harder to obtain them. Lumber, Drywall, etcetera. Every time the materials get more expensive because they're harder to obtain, the price the builders need to charge for the same number of the final product also rises. If they can't make that much, fewer dwellings get built until they can. Nobody is going to build if they know they're going to lose money in advance. If they can make more than that, more dwellings get built. The reason nobody is building anything now, greatly discomfiting the building trade, is because there is no money to be made. When prices start going back up, things will start getting built, apartments will be converting to condos again, and if we try to stop it, there will be worse consequences than that.

Last and most importantly, Cost, which most of the others also contribute to. The more it costs to build a dwelling, the fewer that will get built. The cost of the permits isn't just the money the city charges so they can do the inspection. It's the cost of having someone fill out all the paperwork, having someone else make certain that all the requirements are adhered to before that, and of designing the requirements into the construction before that, which not only costs money for the architect, but also for the reduced benefits to the builder. All of this takes time, which means it has what economists call opportunity costs, as well as actual costs. If I can get a better return on the money doing something else, I'm not going to build housing. If I have a hundred acre parcel for dwellings, and the regulations say I have to set aside half of it for other uses besides actual dwellings, then I can only build dwellings for half as many people. If I try to cut the size of the individual dwellings in half, the plans don't get approved, people don't want them, and they don't buy. What this means is that I can only get half as much revenue as I might otherwise get. What the decreased potential revenue means is that projects which would be profitable at full density would lose money at half density - and therefore don't get built. What that means is that there is less supply, so prices are higher, so price rises until enough people voluntarily drop out of the market that there is a one-to-one match between buyers and sellers.

I've already touched upon Manhattan real estate. Coastal Southern California isn't there yet, but you can see the trend if you watch. In San Diego, there is essentially no more dirt to build on. Open space requirements, minimum lot size requirements, maximum density regulations, and we're hemmed in on about 330 degrees of the circle by four obstructions: Mexico, the Pacific Ocean, Camp Pendleton, and Cleveland National Forest. The I-15 Corridor is one of the few places new development can go, and it's solidly populated all the way to Riverside now - over 100 miles. But people still want to live here, and there are still jobs here, some of them highly paid. We can build higher density housing or we can price people out of ownership and into apartment buildings - and rent is going to get more expensive as well, to cover the increased costs to the landlords as well as their desire to make as much as practical. The highly paid professional doesn't particularly suffer - it's the $15 dollar per hour worker who gets stuck unable to buy, even a condominium, with an ever larger percentage of the paycheck going towards rent.

No matter what market you are in, prices are not going to come crashing back down because that is what will enable you to buy a house. Prices did get over-inflated in a lot of places for reasons I went over in Fear and Greed, or How Did The Housing Bubble Get So Big?. But just because they're higher than they should be now doesn't mean they are going to come crashing back down any further than the place were demand meets supply, and that place is higher than most bubble proponents are willing to admit. The pricing support is there for $350,000 to $400,000 starter homes in San Diego - a family earning two median incomes can afford it. A family earning less than two median incomes can afford it. Furthermore, unless our local housing policy develops a sudden massive attack of rationality, houses are going to start getting less affordable once again as soon as the excess inventory has cleared. Thirty years from now, tiny 1 and 2 bedroom condos will be going for more than that, even adjusted for inflation and standard of living, simply because nobody can build and the demand keeps going up. "Low income housing" and similar things are nice for the beneficiaries, but they are basically a band-aid on a severed carotid artery. The only effective way to fix the problem is to build more housing. There are three ways to motivate someone to leave or not to live here: love, money, and force. As long as San Diego has sun and beaches, people are going to love it here. The only way to change that is to ruin it for everyone. The second way is pricing them out of the market, which is what I'm talking about and what has been happening: People decide that their standard of living would be so much higher elsewhere that they are leaving for economic reasons. The third way is force, and unless you want to see the United States ordering people to move at gunpoint the way Arab countries kicked their Jewish populations out in 1948 (I don't), pricing is by far the preferable way to do it. Pricing people out is ugly, but it's a lot less ugly than the alternatives. Unless we decide to reverse out policies of the last thirty-odd years, we're going to get more of it, and it's going to get ugly. Until we do start building more dwellings, steadily inflating housing prices are here to stay. Especially in the highly popular, highly populated areas where everybody seems to want to live.

Caveat Emptor

Original article here

I am selling my home to this couple and from day one I wanted this to be strictly a buy-owner sale and they knew this but they brought in a Realtor and wanted me to give her 1% for paperwork all because they have been friends with this Realtor for 20 years. But when I met with their so-called Realtor she didn't seem to be a REAL legit Realtor. On her business card is only a cell number, no web site, only an AOL email address, and fax. On her business card it states Broker but after further research she is listed as an agent if this is even the same person, because I didn't pull the search by license number only by the Real estate company name. Today the purchase agreement was signed but I noticed that her license number WAS NOT disclosed no where on the home sale contract, just her name and title. Is this legal for a Realtor to fill out a sales purchase agreement without disclosing her license number. I really do not think that she's even a Realtor, just the Buyer's best friend.

First off, even if this person is a licensed agent (as opposed to Realtor®, which is roughly equivalent to an agent who is also a member of the marketing union) Dual Agency is setting yourself up to get taken advantage of in major ways. Nobody can effectively serve two masters with such wildly divergent interests. Buyers want the lowest possible price; the sellers want the highest. Buyers want everything fixed; the sellers don't want to spend any money they don't absolutely have to. If the transaction falls apart, buyers want their deposit back while the sellers want to retain it. I could go on and on. Exactly how is someone supposed to work for the best interest of two clients with such directly opposing interests? Never use the listing agent as your buyer's agent, or vice versa.

Now as to the question you asked: You don't say what state you're in, but every state that I know of has an online licensee database (the fact that you have a real estate license is public record).

The business card stuff, I can ignore. There are still agents effectively working in 19th century conditions. And unless you're a supervisory broker, lots of firms will simply list you as an agent on the roster, even if you have your broker's license.

The failure to disclose license number is more serious. State laws vary, but here in California it's required to go on basically every major document, including the purchase contract, and at this update, business cards.

Who's handling escrow? Ask them what the agent's license number is. If they don't have a license for this person, you've been scammed, and you should contact your state's department of real estate immediately, as well as a real estate attorney to see if you have a valid lawsuit. Actually, if the license number really isn't on the purchase contract, there is material there for a lawsuit, at least in California. If they don't have a license, they are probably practicing law without a license, as a real estate license allows an agent to fulfill a very limited set of functions that would otherwise require a law license. Even if it isn't automatically practicing law without a license, chances are that someone who doesn't have a real estate license has gone over the line into things that require an actual attorney. Going over the line into practicing law without a license is probably the second most common way that actual licensed agents get successfully sued and criminally prosecuted - right behind record-keeping failures in the brokerage escrow account.

I don't know why people think real estate agency is no big deal and that anyone can do it effectively. Actually, scratch that; I do know. People don't like spending large amounts of money needlessly, and there's a whole bunch of businesses trying to sell things where their sales depend upon people believing that they can do just as well without an agent. It's not true, but there's no law against trying to convince people of something that isn't true - if there were, every politician and every lawyer in the country would be in prison. To be fair, good agents who know what they're doing do cost what appears to be a large number of dollars, but that is nowhere near as expensive as buying without an agent, or selling without one. People don't know how much they don't know, and unfortunately there is no entry on the HUD-1 telling people how much the agent saved them or lack of an agent cost them.

Make sure that agent is beholden to you, and not the other side of the transaction. Go and find yourself a good listing agent (Just as if you were buying, I'd tell you to find yourself a good buyer's agent), and you won't have to worry about whether the other party's agent is licensed - if they're not, it's not your problem, and won't be your disadvantage.

Caveat Emptor

Original article here