Buying and Selling: December 2016 Archives

On a very regular basis, pretty much every buyer's agent who's worth anything gets clients who have difficulty making a decision. Not too long ago, I found a solid property with great potential that nonetheless needed about $20,000 of cosmetic work. In short, right now it was ugly and unappealing, but it had a WOW! view and it was priced $100,000 below a model match a few doors down. They looked at the property five times over the course of a month, and just as I finally had them willing to make an offer, somebody else put in an offer that was accepted.

Immediately, the property went from something they were reluctantly willing to consider living in to something they had to have, but at that point it was too late. The owners were already under contract. Unless the transaction fell apart - and it didn't - there was nothing anyone could do. Real estate needs one willing seller and one willing buyer. If someone else gets there first, you don't get the property. The seller's side has its own version - whomever competes the best for a given buyer wins. There are no prizes for second place.

There is no such thing as a perfect property. Unless you have an unlimited budget - and no one has an unlimited budget - there are always trade-offs. Trade-offs in the form of location, or amenities, or most obviously, price. You've probably heard trite little sayings like "paralysis through analysis" and the pithy "you snooze, you lose." They're trite because they're true. You must be willing to act when things aren't perfect in order to get any benefit. If you aren't willing to act in a timely fashion, you get nothing. The better the situation, the more risk there is of someone jumping in before you. Yes, sometimes this means you're at risk of being conned. There is no way to completely eliminate that risk. If you're only willing to jump into the perfect situation when all risk has been eliminated, you are wasting your time. Somebody else is going to jump first. The only way you're even going to buy - or sell - anything in those circumstances is if you're the victim of a scam. Reward is necessarily coupled with willingness to work and to accept risk. You can certainly work to reduce the risk, but there will always be an element of risk present. If you're not willing to accept any risk, welcome to the life of a spectator.

This isn't just my clients. Seems like every time I've taken something "Pending", I or whomever the listing agent is gets calls from people who are suddenly interested. I finished a transaction not too long ago where one suddenly interested buyer called the listing agent literally every day while it was in escrow. He was wasting his time. Once it's in escrow, you're too late. Unless it falls out, a thing that's not under your control, that property is committed to someone else. But it seems like the mere fact that someone wants it brings prospective buyers out of the woodwork, now that they can't have it. Kind of like sibling rivalry, only even more pointless because if it does fall out of escrow and become available again, you are sabotaging your negotiating position.

I've dealt with several families over the last few months who want to buy, but are convinced the market is heading down further. Fear and Greed is keeping them on the sidelines while the ratio of sellers to buyers has dropped from 42 to under 12. This ratio is the best measure of supply to demand ratio there is, and the most important indicator of the direction of the market. They are confusing past performance with market prognosis. Even during the most gonzo seller's market we've ever had, this ratio was about 4:1, and anything under about 12 or 15 to 1 indicates a seller's market. Furthermore, people who want to buy is building linearly with time, while the ranks of people who need to sell has already seen the strongest influx it's going to have, and the lenders are finally willing to act to prevent losing more money than they have to. On the buyers' side, everybody is crowding around, trying to get someone else to be the test penguin (1). On the seller's side, there is only so much desperation out there, and it appears that we've already burned through the vast majority, at least here in San Diego. Eventually, the buyers who are trying to get someone else to be the test penguin are going to realize that the people buying now are not getting eaten - in fact, just about the furthest thing from it - and they will jump in, en masse. (At this update, the biggest thing holding people out of the market is artificially restricted loan eligibility, due to Congress passing bad lending laws in 2008-10)

All real estate is only "good while supplies last." For sellers, this includes supplies of willing buyers. Since there is rarely more than one of property in a group, bargains only last until one person pulls the trigger. The easier the bargain to spot, the shorter the period to act. Even the hardest bargains to spot do not have an indefinite shelf life. Real estate is not like war, where if you don't attack the enemy, the enemy will attack you. So a bad plan now doesn't trump a perfect plan two weeks from now. But a good plan, acted upon in a timely fashion beats a perfect plan that waits just a little too long.

Caveat Emptor

Original article here

(1) Penguins don't jump into the water immediately. Instead, they crowd around the entrance to the water, and avoid being the first in, due to the possible presence of predators. However, eventually one penguin gets pushed in by the others. If he doesn't get eaten, the other penguins quickly follow. It is to be noted that those positioned to respond quickly, and hence most likely to be shoved in as "test penguins" also have the best shot at whatever food may be present. And the predators are always drawn by a hot market which enhances the likelihoods of making large amounts of money.

My husband and I are currently in escrow with the sale of our home in California. Our buyers have been " difficult" to say the least. The buyers appraisal of our property came in $6,000 below the selling price which won't make a difference to their lender because the buyers are putting 50% down. Of course, they started threatening us saying, "you need to issue us a $6,000 credit since the appraisal came back $6,000 below our agreed upon price." We paid for a second appraisal through a company that was lender approved. The second appraisal came back $3,000 above the purchase price. We have 2 questions:

Is their lender required to accept or at least consider this second appraisal or can they simply disregard it?

If the buyers try to use the appraisal clause against us to get out of the deal, can we keep their earnest money since we have a documented appraisal showing a value of $3,000 above the agreed upon price on the contract?

Thank you for your insight and expertise.

There are three things to consider here: The contract, potential scams, and what's really important.

The standard purchase contract has two clauses directly relating to this question. The first is the loan contingency, the second is the appraisal contingency. The first isn't really a factor in your case, but it often is, as a failure to appraise for the purchase price can torpedo the loan if the down payment isn't very much. If these buyers needed anything close to the maximum loan to value ratio, that would be a dead contract as it's written because the lender isn't going to fund that loan. The second, more relevant clause in your case is the appraisal contingency. It states that the transaction, as negotiated, is contingent upon the property appraising for the official purchase price or higher. There's an argument to be made that your appraisal is enough to cancel that contingency, but in practice, appraisals can be had for inflated amounts quite easily. If the seller being able to obtain an appraisal for the sale price was the relevant condition, I'm not sure there would ever be a property that would fail to appraise for the purchase price or more. Spend $400 for your own appraisal and keep a $5000 deposit. Nice work if you can get it. Acting as a buyer's agent, I would never accept a seller's appraisal under any circumstances. This may be news to all of those who put "Appraised for $X!" in the listing, but there are too many ways to get an inflated appraisal. Point of fact, it's usually someone trying to justify a higher asking price than the market will support. It's never a reason for me to consider a property, and can be a reason why I shouldn't.

The real bottom line in the current market is now Home Valuation Code of Conduct - the buyer's lender orders the appraisal, and that's the value the loan is stuck with. Doesn't matter if it comes in $100,000 too low because the appraiser chose absolute B.S. comps - that's the appraisal you're both stuck with, at least with that lender.

To be fair, buyers can get low appraisals too, which leads us into the second subject: potential scams. You're in California. There just aren't many properties I'm aware of in California where $9000 difference is a major percentage of the selling price. If you were somewhere where the average house sells for $40,000, this would be cause for concern. Flipping for an extra 22 percent profit! But when the average property sells for $400,000, it's just too small an amount over too much of a major stumbling block to be worth scamming someone over. Not that it's an amount to be sneezed at, or impossible, but I just can't see someone running a scam for only 2.25% of the sales price. If this was a scam, I'd expect $30,000 or more in difference. This is too small a difference to be a likely scam in the real world.

Speaking of the real world, what's really important is your market. How many sellers per buyer, how long properties like yours are sitting in your area, what they're selling for when they do sell. Note that I didn't say what the asking price is. Any twit can put an asking price that's 20% too high on a property, and quite a few do - it's a great way to get listings from owners who don't know any better. It's called "buying a listing." The important data have to do with actual sales. Not pending sales, not the pipe dreams of "For Sale By Owner" properties, not what the model match next door is asking, but what they are actually selling for. Coin of the realm passing out of the buyer's hands. A willing buyer is a necessary component of every sale, just as a willing seller is. If you just want to list your property, you don't care about a willing buyer. If you actually want to sell, you absolutely have to have one.

The good news is that you appear to have one. The bad news is that they don't want to pay the amount on the contract any longer. Well, buyer's remorse strikes a lot of folks, but the stronger their buyer's agent, the more they're going to get that out of their system before they make an offer. On the flip side of that for sellers is that the stronger the buyer's agent, the more focused they are on value.

Against this situation, you've got to ask how likely it is you're going to find a better buyer soon enough such that you net more money off the sale. If the property is vacant and your carrying costs are $3500 per month, this buyer now will still net you more money than a different buyer who pays the amount on your appraisal three months from now. I only know the San Diego market, and if you're here, why am I not involved in the transaction? But no matter which way you decide, you're taking a risk. Some people will just take the money and run because they're unlikely to have their face rubbed in the fact that they were wrong - the property is sold and future offers are a waste of everyone's time - but that's a putrid way to make a multi-thousand dollar decision. Actually, it's not just a multi-thousand dollar decision. It's potentially the full value of the property and your credit rating as well for years if you default. If you've had a Notice of Default recorded on the property or something worse, they're being a lot nicer than some folks to only mess with you for $9000.

My point is this: There are potential upsides and downsides to every possible decision you can make in this situation. Can I tell you which way to jump? Not without more information. Will I tell you which way to jump? I don't risk my license and my livelihood for free. It's your agent's job to do that. If you're representing yourself, you've just run smack into one of the lesser reasons not to.

Matter of fact, whomever your agent is, the information you've provided draws a pathetic picture of their competence. There could be exculpatory information out there, but this is all basic, "hit the ball with the bat" level stuff that anyone who's been in the business three weeks should be able to deal with, and if they're that new, their supervising broker should have explained it to them, if their supervising broker had a clue themselves. If this transaction falls apart, go find an agent who knows what they're doing. Nor am I impressed with the buyer's agent from the information provided. When something goes wrong, telling the other side "you have to" is a good way to kill a transaction that can usually be saved. You don't have to do anything. You could tell them to take a long walk off a short pier. How smart it is depends upon factors I can't see from here. But this is why negotiation is the biggest factor in the game of real estate. Some folks won't, some folks can't, some folks just don't know how. They're going to suffer unless their agent does. Because all the preparation and work I do is wasted if I don't negotiate effectively. Any twit can say, "No," and quite a few do. They're hosing themselves if it's the wrong answer. The opposing fact is that the transaction doesn't start until you have an agreement, and if the other side believes they've been hosed, they can usually get out of it if they really want to.

They can get out of this one if they want to, and while you can be stubborn about the deposit, you'll probably lose in court. They have an appraisal contingency in the contract, and the appraisal came in lower than the purchase price, giving them the option of bailing out. Personally, I find an appraisal contingency on top of a loan contingency to be the sign of a weak offer from a buyer who is going to bail out at the first issue with the property - and no matter how much you love your property, there is no such thing as a perfect property. When I'm representing buyers, my job is to work on their behalf, but I am very willing to counsel them to waive either the loan contingency or the appraisal contingency, because as long as we have one of the two in effect, we can live with it, and it's a sign to better listing agents of a stronger offer that's more likely to close from a committed buyer.

Caveat Emptor

Original article here

Hi, my name is DELETED, I need help. I bought a house (a few months ago) because my boyfriend persuaded me to. This was supposed to be a real estate investment between us. I put the house in my name and i was supposed to get $9000 and he was gonna keep the rest to do the repairs. I never received my money and he never did the repairs on the house and we ended up breaking up (about a week later). I started getting suspicious, (a few days ago) I found out that the appraiser lied on the appraisal. He lied and changed the square footage of one of the comparable houses to make around the same square footage of my house showing that it sold for the same price I brought my house. There is more to make me think he lied. I found out that the mortgage person, the seller, my ex and the appraiser all know each other I think it was a set up. I have a lawyer, but what can happened after the loan is already in my name. This house is not worth what I bought it for he appraised it around $50,000 more. Will the mortgage company have to buy the house back because they are supposed to check it. When I looked up the appraisal company that he had on the appraisal, it doesn't even exist. Please give me some advise, will I be stuck with this house?

Talk to your lawyer. It sounds like you've probably got a good case for a civil suit, and can make criminal complaints as well for fraud and conspiracy. However, you have title to the house and a Note that says, "I agree to pay..." and a Trust Deed securing said Note. Just because you are the victim of a scam does not relieve you of your obligations under said Note and Deed of Trust. Not living up to those obligations is one of the best ways I know to make a bad situation worse. It's going to take a while - probably years - before you recover anything of what you've been taken for, if you ever get it. The wheels of justice grind slowly, and require a lot of lubrication in the form of money. Just because you're the victim doesn't change the process. It's conceivable that your lawyer may even advise you to let it go, if in their judgment you're unlikely to recover enough to make it worth your while.

Before we get into the main issue, let me cover a special red flag that was ignored. When you are buying a house, you are not going to get cash back - not with the approval of the lender. As I went over in Real Estate Sellers Giving A Buyer Cash Back, concealing something material from the lender is fraud, in and of itself.

Lots of people get talked into cutting corners in their transaction or doing without an agent because "agents don't really do anything." However, there are so many scams out there that any time you cut corners you risk getting taken for the full amount of the transaction. Lots of folks discount the possibility - until it happens to them. And it does happen. Real estate is the largest dollar value most folks ever get involved in, and scamming a little extra is likely to be major money in and of itself. A certain percentage of all transactions have issues - and when someone tries to talk you into short-circuiting your protections, that's pretty much a red flag that this is one of those transactions to beware.

Not falling victim is worth a lot more than those protections cost you. As a buyer's agent, my goal is to make at least a ten percent difference in the quality of property, the price, or some combination. I haven't missed that mark yet; and in some markets my average is closer to 35 percent. But that's in addition to preventing things like what happened to you. Having an agent gives you someone responsible to you. Someone you can sue if something goes wrong, so they have incentive to guard your interests. Someone with insurance (deep pockets!) and a license and a broker supervisor who should have monitored the situation. Not to mention who should be able to prevent the situation happening in the first place.

Can you stop collusion between the appraiser, the loan officer, and the seller? No. Stopping collusion is difficult, as anyone who has ever studied accounting can tell you. A lot of the curriculum goes into the subject of controls, and separating functions so that it's only with multiple people cooperating that assets get embezzled. But with an agent who knows your market on your side and bound to you, it's a lot less likely they'll get away with it. How likely would you have been to buy the property for the price you did if an agent had said, "I can get you a better property for the same money" (or something like it for less)? Kind of likely to short-circuit the entire scam, eh?

Caveat Emptor

Original article here

On a forum I frequent, someone posted this advice for prospective property purchasers: At closing, at the title office or bank, when signing the title, contract for sale or any transfer instrument (use a single obliterating line) mark out the word "tenant" and write above it "landlord" or "buyer".

Better yet, require a free simple title to transfer ownership without the buyer identified as a "tenant".

I do not understand this "advice" and am turning to you for clarification. Thanks!

I only work in California, but the only times the word "tenant" should appear on a title transfer deed is if it's a leasehold, or to describe the manner in which two or more grantees hold title amongst themselves.

It is possible that someone might contend that a title granted as "tenant" was a leasehold or rental interest of some nature. I can't see it working in the face of a purchase contract, though, unless there's a whole lot of scamming going on, and everybody involved would basically lose their license and their livelihood, and be liable to the purchaser for what they should have gotten, and didn't. Be advised, however, that I'm not a lawyer, so consult one. With that said, however, such words shouldn't appear unless there's a reason for it.

Here in California, the deeds typically read "(A) grants (B) (type of title or interest) in (legal description of property). It doesn't say seller, buyer, or anything else along those lines. It simply transfers title from one group of holders holder to another. There can be commonality between the first group and the second - say a parent granting the property from themselves to themselves and their child. Spouses usually automatically join title by action of law, but it can be beneficial to have them officially on title of record in some cases. They can also be used to remove a particular party to the deed, by omitting them from the list of parties the property is being granted to, as in from W, X, Y and Z to W, X and Z.

There are two kinds of transfer deeds most people will see: A Grant Deed conveys any interest in the property, including interests that may accrue due to operation of law at a later time. A Quitclaim Deed conveys only what interests you many currently have. An actual purchase should use a Grant Deed, transfers within a given family most often use Quitclaims. There are others: Warranty Deeds and Special Warranty Deeds, the latter being mostly used in lender owned property. Both are insurable, marketable title, but there are differences and if you need to know, consult a licensed attorney. Sometimes people acquire title through court judgment, and the title being granted is as strong as anything else, if subject to appeal.

The holder or holders can be lots of different things. It can be a corporation, husband and wife, a single individual, a trust, an estate, a partnership, etcetera, or even a combination.

It also includes how the grantees are going to hold title: joint tenants, tenants in common, common property, etcetera. Each of these has legal implications, and those implications change from state to state. Consult a lawyer in your state for more. Joint tenants, also known as joint tenants with rights of survivorship (i.e. survivor gets the entire share of title), is the most common way for married couples to hold property, but there are many others. There can be layers of this - say a husband and wife hold their share of title as joint tenants, but they are only part owners in a tenancy in common. Any time there are two or more owners, the title deed has to say how they are going to hold title between them. Each of the possibilities has legal meanings and consequences. Single property owners can be and usually are described as "a single man/woman", "an unmarried man/woman" (not the same thing as single!), "a married man/woman as his/her sole and separate property" and many other things, but the word "tenant" does not appear in any of the possibilities I am aware of. Each of these implies things about the state of title as they hold it, but a full description is beyond the scope of this article and changes from state to state. Consult your attorney for details.

The interest being granted can be one of several things or a combination of interests. A "fee" is a piece of actual land. An "easement" is the right to use a particular piece of land in a particular way, but without the rights of ownership. The most common easement is access. The owner of parcel A gives the owner of parcel B the right to travel over a specified part of parcel A in order to get to their own parcel, or for other purposes. Utility easements are part and parcel of this, and the parcel owner granting an easement is giving up rights to do things with their property that conflict with that easement - for instance, building a garage or granny flat over the gas line. If conflict happens, the property owner is required to do what is necessary to give the easement owner their rights. Quite often, easements run with the ownership of a given property, in which case the title being granted is a fee and one or more easements. A leasehold is a time interest - for a specified period of time. Think of it as a rental interest to get the idea. Finally, there is a condominium interest, in which someone holds title to a share of an underlying property, which interest cannot be partitioned off, and usually comes with some rights of exclusive use to a portion of that property. In plain English, you own a defined share of the entire thing, and exclusive rights to your condominium unit, your assigned parking space, and anything else that may have gone with a particular unit under the Condominium Plan, but you have no rights to split yourself off from the common ownership interest. Just because you live in detached housing does not mean you don't live in property that is legally a Condominium. It irritates me no end to read "title being conveyed" in MLS being "fee simple" and then below read that are homeowners association dues on the property. These two things never go together. If there are association dues on the property, it isn't a fee simple.

Whether the person signing a title transfer deed had a right to grant the ownership interest conveyed (or all of the ownership interest conveyed) is a different story. I can grant my interest in a property on the moon to anyone else, but if I don't have any interest in the property granted it is meaningless - a wasted piece of paper. This is the strongest of many reasons for title insurance. People granting interests that they may not own or control happens all the time. Usually, it is to clear up a cloud on title, but fraud is a real and significant factor, and sometimes people legitimately may believe that they are (or were) the owner, but it turns out they weren't due to some unforeseeable or unknown factor. If someone sells you a property they don't own, and you don't have title insurance, you are out the money, still owe the money on any mortgage you may have taken out, and you don't own the property. Here is a not too untypical example: Owner A dies, and sibling apparently inherits. Sibling sells property to someone, who eventually sells it to you. But Owner A had a long forgotten marriage that was never dissolved, and that spouse had a child. Child discovers undissolved marriage, checks to see what property may have been left by Owner A, finds your property. Child sues for title and wins, as they've got the law on their side. It can happen to you, no matter your current situation. Back in the late nineties, an heir of Alonzo Horton (who laid out what is now downtown San Diego well over a century ago) got several million dollars out of an interest in land it turned out he had inherited but lots of people had been using the entire intervening time.

Words in title grants can be important. Unless I was buying a leasehold, I probably wouldn't accept a title deed granted to a "tenant" (unless it was "joint tenants" or "tenants in common" with any co-purchasers in the property), and I'd decline to pay the money until the seller furnished a correct deed. Why should I, when they haven't lived up to their end of the bargain? Why allow them to create a potential can of worms when you don't have to? Lenders, for their part, have also wisely instituted requirements to make the title deeds they are lending money upon conform to certain requirements before they will consummate the loan. They are in the business of making loans that are going to be repaid, not of repossessing property where the owners didn't, but they're not going to tolerate needless clouds on their title if they do need to take over the property. Bottom line: Be careful about wording on the title deed. Word order and even the presence or absence of commas can be important. If at all in doubt, consult your own lawyer.

Caveat Emptor

Original article here

The most common mistake in real estate (and every other aspect of financial planning, for that matter) is to assume the situation now is going to continue indefinitely. In the stock market, people chase last year's returns. They "wait for the market to bottom out". When things are going well, they assume that real estate is going to continue to gain twenty percent per year every year.

This is pernicious. Otherwise rational people just assume that whatever is going on right now is going to continue, and it can be extremely difficult to talk them out of it, as I can tell you from personal experience, having lost an awful lot of income trying unsuccessfully to persuade people to limit themselves to what they could actually afford, and missed out on just as much by trying to move people off the sidelines once things are primed for a recovery. But "Past Performance Does Not Guarantee Future Results" is not just a legal disclaimer. It amounts to natural law, just as strong as gravity or the Second Law of Thermodynamics.

People get caught up in mass psychology, doing things because everybody else is doing them. Mass psychology can move the market. In fact, the history of real estate is mass psychology moving the market. Masses of people believing that a property is worth $600,000, and therefore it is. They believe it's worth $600,000 today in part because they think it's going to be worth $650,000 tomorrow. Or $700,000, $800,000 do I hear $1,000,000? You get the idea.

This works even more strongly on the downslide. People are afraid that if they invest $400,000 in the property today, it'll only be worth $350,000 tomorrow. They don't want to lose money, even if it's only a temporary theoretical loss on paper. They want to wait until the market "bottoms out". Newsflash: Real Estate isn't liquid like stocks and bonds, and should not be purchased (or sold) as if it were, with all of the false conclusions that one assumption leads you to.

I'm now going to invoke one of the great and dirty non-secrets of investing: There is no predicting the top or the bottom. Why? Because it turns so strongly on mass psychology. Nobody can tell when mass psychology is going to change. Nobody can tell what it's going to grab onto, or completely ignore. Not Hollywood, not Madison Avenue, and certainly not your friendly neighborhood agent or loan officer. Mass psychology is the "noise" that disguises the true economic signal.

There is a real economic signal. Most things really do have some kind of intrinsic value to them. This value is determined by function, by supply and demand, and by ability to pay, as well as lesser factors. Real estate is no different than most other stuff in this regard. Shares of corporations have a value strictly determined by the value of future earnings per share. $1 per year of future earnings may be more valuable in a low inflation environment than it is in a high inflation environment. Longer potential earnings streams are more valuable than short term ones - $1 per year per share from a well-run insurance company is more valuable than the same earnings from a company with one technological trick that currently leads the market.

The noise often obscures the signal. A little history that leads to some useful concepts: Back in the first half of the second millennium, the assumption was that Earth was the center of the universe, and that planets (and the sun) traveled in circular orbits about Earth. This didn't fit the observed data (planets sometimes moved backwards against the celestial background), so astronomers postulated that planets moved in "epicycles", smaller circles about what was presumed to be the center path of their orbits, called the deferent. Before Copernicus and Keplerfinally brought the whole house of cards down, astronomers were postulating epicycles within epicycles within epicycles in an attempt to fit the observed data.

Unlike planets, economic variables are moved by more than just one force. The fact that planets and artificial satellites are moved by precisely one known force is why we can plot their orbits so precisely. But economics is a lot more complicated, and so the astronomical concepts of epicycles and deferents have some value in understanding them. Let's even use those terms. It's far more complicated than this, but if you think of mass psychology as the epicycle moving about the deferent of the underlying real value, you may begin to get a useful picture of what's going on. The epicycles can be very large and last for years, but markets always move about the deferent in the end. That's where the restorative economic forces trend - and the further away from the deferent things get carried by epicycles, the stronger those restorative economic forces are. Right near the deferent they're not very strong, but the further from the deferent that mass psychology and other epicycle creators move perception of value, the stronger the restorative forces get. Think of a a large massive ball the size of the US economy rolling down a broad shallow valley where the sides get progressively steeper. Things can happen to the ball to move it out of the exact bottom of the valley quite easily, but at the moment it moves off the deferent, forces start acting upon it to move it back to the deferent. Small, almost unnoticed forces that build up, and build up more the further you get from the deferent.

Now what does all of this have to do with the price of tea in China, or more precisely, the price of real estate in your area? Everything. For over a decade, we had been pushing that ball up one side of the curve, as I detailed in Fear and Greed, or How Did The Housing Bubble Get So Big? (first published February 2006). We had mass psychology and political direction and the lenders competing for market share and profit with ever more aggressive loan products, and they all pushed the ball about as far off the deferent as it was possible to go. We had hundreds of millions of people pushing that ball just a little more uphill, assisted and wedged and leveraged and braced by all the machinery we could bring to bring to bear. We had it firmly in our minds that this was the "good" side of the valley, where we wanted the ball to be, and we wanted it as far up the "good" side of the valley as possible. We even started thinking of this so-called "good" side of the valley as the deferent, but the deferent pays no attention to what we think.

Now let me ask you: When that 17 trillion dollars per year ball finally breaks loose and starts rolling down the hillside, building up momentum all the while as the restorative forces add more and more to that momentum all the way down, and keep adding more and more momentum (although the amounts being added get smaller) all the way to the center, do you think it's going to suddenly and magically stop right on the deferent?

Not in this world or any other. It's got all the momentum that a 17 trillion dollar ball powered by 320 million people can build up, and guess what? It crosses right over that deferent like it wasn't even there and keeps on going. By this time it's got mass psychology behind it just as much as it ever did on the way up, pushing it ever harder as well. In an economic analog to the gravity assist (aka slingshot effect), it is very easy to push it much further to the "bad" side of the deferent than ever we had it to the "good" side, particularly as the government meddling intending to slow the ball's rolling is in fact making it worse and worse and worse and worse and worse, because the government is not paying attention to the Law of Unintended Consequences. However, none of this changes the fact that the restorative forces pushing the market back towards equilibrium are always in effect, and never quit.

What's the practical upshot? Well, other than the fact that any disturbance from the deferent distorts the markets and makes for future oscillations, and that anything we can do to the market generates just as many losers as winners, what is the practical upshot for individuals? Nobody can directly control the market actions of others, so how can we as individuals best deal with all of this?

The way we deal with all of this is quite simple. First we have to get as true a picture of where the deferent really is as we possibly can, or at least where we are in relation to the deferent. What is the supply of housing like in your market, and how easy is it to add more? What is the demand for housing like in your market? Do people want to live there? Are we talking San Diego and Honolulu, or are we talking Detroit and Cleveland? Next, we have to ask "what is the ability to pay?" How much do people make relative to the basic necessities of living? How strong and how varied is the area economy? Is it a hub for multiple industries like San Diego and Boston, where if one industry tanks the market is likely to be supported by others, or is it a one industry (like Silicon Valley was twenty years ago) or one company town (like Seattle used to be)?

At any one point in time, the value of a particular property is a function of the value of comparable properties around it. If model matches in the neighborhood are selling for $300,000 right now, the property is likely to be worth about $300,000 right now. The only way to tell for sure, of course, is to put it on the market and see if anyone buys it for that. The trend is a function of supply and demand - how many properties are for sale right now and how many people want to buy them - as well as mass psychology. Finding the deferent precisely is incredibly tough, but finding which side of it we're on is usually much easier, if you will ignore mass psychology and what is happening right now and look at the underlying economic factors of a particular housing market.

I performed such a study a while ago; a study I stand by the results of (if anything, more strongly today than then). The study assumed an underlying interest rate of six and a half percent as that was what was available for about one point then; rates are much lower than that today. Mass psychology - a temporary phenomenon of millions of Chicken Littles screaming that the sky is falling - obscured the underlying basics just as much on the way down as it ever did on the way up. Add in that the party in power in the government is doing its dead level best to kill the loan market and the economy, and things get depressing. But governments change and mass psychology does too.

Obviously, the way to profit is different now than it was back when the market was going full gangbusters the other direction. Then, you could buy any damned property you like, pretend to fix it up a bit, and the rising tidal bore of the market and mass psychology would ensure you could make a profit. But the economics of relying upon flipping a property for quick profit are chancy; market sentiment can turn any time.

Longer term investing gives less spectacular results but more certain ones. The deferent for real estate values does rise over time, with population and economic prosperity and the fact that the amount of land available in an area is fixed, and the trend seems to be tying up more and more of that land in reserves of one sort or another: Open space, limited development zones, historical landmarks, etcetera, not to mention legal terrorism relating to property that may not be within a given reserve but that someone wants to prevent the development of. All of this makes property more valuable as time goes by, population rises, and that same population becomes more affluent. If there are 100,000 properties in your area and 150,000 families, the price will be whatever the top 100,000 bidders are willing and able to pay. If the 100,000th buyer is willing and able to pay $200,000 for a property, that becomes the price. Now suppose there are suddenly twice as many prospective buyers. Does the price go up or down? For the mentally challenged, the answer is "up". It's still the top 100,000 bidders who get the properties - but there are now 300,000 competitors. Bidders are going to have to do more in order to be successful buyers - and the ones who aren't willing or able to do more will go without, just like any other good. But housing isn't like concierge service or spa visits - The alternative is not to do without, but rather to do with a lesser substitute for what we really want. Even if it's underneath a bridge or in their car, people have got to have a place to live. This tends to make for more inelasticity rather than less in the demand curve, or to put it in everyday English, if the price of housing goes up, people tend more strongly to do without other things instead of cutting back on housing. Most people don't have a need for a six bedroom 3000 square foot home no matter how badly they want it - but most people would agree that the minimum acceptable substitute for a family is somewhere between a 2 bedroom rented apartment and a three bedroom1200 square foot PUD, rather than the inside of a drainage culvert. The strongly supported conclusion of all of this is that there is a level that housing values will trend back towards, and that deferent (at least in San Diego) is well above current values.

(Note to renters: The demand for rentals is increasing even more because of all the people who lost property and can't get a loan right now. The vacancy factor in San Diego is already a microscopic 2%. Nor can landlords skate on make-believe loans like so many of them were doing, planning to make money off a rising market. What do you think this is going to do to the rental price, particularly of non-apartment units? If you haven't shopped for a new rental lately, be prepared for a some sticker shock when you or your landlord terminate your current tenancy, and in the meantime be prepared for significantly increased rents as landlords discover they can get more)

So how to you make a profit in this sort of situation? First, put any thought of a quick flip out of your mind. The odds against it are so long as to equate to "Not gonna happen", at least not profitably. This is an investor's market. You buy with the idea that you're going to hold the property a minimum number of years. I would advise three at a minimum, and plan for at least five. Make sure you've got a loan that you're going to be happy with that entire time. It's a lot more expensive to refinance investment property than it is your primary residence, and the constraints on doing so are far more telling. If you're putting enough down, a commercial loan becomes a real possibility, simply because the qualifications are easier right now and the rates are competitive. You need a positive cash flow out of the property - which means most likely you're looking a larger down payment rather than a smaller.

Planning to rent the property out is always a winner. If you can get a positive cash flow out of renting it, the only viable economic model of ownership does not depend upon the location of your job in relation to the property. If you need to move hundreds of miles away and renting it out is not an option, you are at the mercy of the current market and whatever phase the mass psychology epicycle may be in. This is one thing that bit an awful lot of people in the last couple years. Just because renting it out is economically viable doesn't mean you can't choose to live in it yourself, but life throws curves. Having the ability to make your property into a viable rental is a pretty effective trump card for most risks of housing. Even if you can't live there because your new job is on the other side of the continent, someone will want to. Especially in San Diego.

Make it habitable, bring the maintenance up to date and keep it that way, but with that said, I would hesitate about upgrading a rental before the actual time comes to sell it. Renters can't ruin your new remodel if you haven't done it yet. Granite countertops, maple cabinets and travertine floors still need to be taken care of. Furthermore, they do got old and less attractive looking. When you go to sell, you want them to be brand spanking new to sucker in buyers without a good agent, one of those bits of detail that sells a property that has already appreciated for a noteworthy premium. Upgrading isn't what makes the property more valuable; the market has already done that. Just like most long term investors, you really made your money when you bought - you're just waiting for the market to formalize what you know is going to happen. You've already made a profit by buying when prices were cheap - you're just not sure when the check for the profit is going to get here. Warren Buffett (among many others) has made most of his billions of dollars the same way.

There are precisely two times in the history of holding a property when the price counts: When you buy it and when you sell it. In between, the market value can be thirty-nine cents for all you care. If you don't sell it then, it's not important. If you know that market is going to revert to something higher in a few years, you know you've already made a profit, you're just waiting for the check to roll in. In the meantime, you're living in it (gaining the valuable benefit of shelter) or making a little money every month from the rental.

People think they're going to outsmart all of this by waiting for the market to "bottom out" or turn around, just like they think buying property when the market is rising is a "can't miss" proposition, and for precisely the same same fallacious reason. First, nobody can predict exactly when the market will turn. Second, when it does turn, it takes a while for it sink in to the public consciousness. Mass psychology, remember - it takes a lot for things to penetrate. Third, when it does manage to get people's attention, it's because you've already missed the best window. The way you figure out that the market is going up is by missing the first ten or twenty or fifty percent of increase, if not more. Fourth, mass psychology is fickle. It's difficult turn the market back around short of what I've been calling the deferent point, but it can happen, has happened, and will happen again. Fifth, as I have said previously, what I've been calling the deferent can be very hard to discern exactly. Suppose the market is already past that by the time you wake up and smell the coffee? That's how bubbles happen, and how people get caught up in them and metaphorically lose their shirts. How many bubbles of one sort or another have we had in the last ten years? Betting on making money because of another bubble like the one we had anytime soon strikes me as a bad bet such that everybody that makes it is likely to lose. So don't make it. But the psychology of "waiting for the bottom" encourages precisely this kind of thinking.

You can always find a good investment if you've got the patience. But right now, properties that are going to make someone an awful lot of money when the market normalizes are so thick on the ground that you can't hardly avoid tripping on them. Furthermore, mortgage rates are near all time lows. The interest cost if you need a loan, or want one so that you can put leverage on your side, is even lower than the base cost in dollars. The time to make a bet that you're likely to win is when the odds are on your side - while the market is below long term trends. You know it's going to come back eventually, and as long as you can afford the property, you're just waiting for the check to arrive.

Caveat Emptor

Original article here

The vast majority of the population out there wants single family detached housing. The virtues and benefits of the single family residence have been extolled ad nauseum, and the drawbacks of the alternatives are the stuff of urban legend.

Unfortunately, in San Diego and many of the other densely populated urban areas of the country, the price of single family detached housing has gone beyond what the average person can easily afford. Even if they fall further from this point, in many areas, San Diego among them, the price of a single family residence isn't going to fall to what the average single worker can afford. The supply is too low, and the demand is too high. When you consider economic reality, the evidence is overwhelming that the real estate market in San Diego at least was beginning a very turnaround before the government spooked everyone, and even in other areas where prices still have further to fall, there's a limit to how far they're going to go.

So for people earning average wages, the choice becomes purchasing one of those alternative forms of housing, saving until they can afford it, or being a renter for the rest of their life. I went over how little saving for a down payment helps most folks, and how a strategy of buying what you can afford now helps more and faster than saving for a down payment. One further option exists, of course: Move to a less expensive market, but that requires finding a job there. There's a reason that all of the highly demanded urban markets are in high demand: That's where the jobs are!

Still, people will tell me they don't want to buy until and unless they can afford a single family detached house, with no association. That's fine if they're going about the process of saving. Most of them would be better off buying the lesser property and using the appreciation to leverage their savings, but it's okay to decide to take an alternative route to getting what you want. It's a free country.

However, in my experience, it's really rather rare to find people who are actually putting the money aside. It's great if you want a house and are putting the money aside to make it happen. I just helped a couple that could afford a beautiful house in a great area because they both worked hard and saved something like five years of their combined earnings for a down payment, but they're the rare exception. I know a lot more people that have been planning to buy a house for twenty years and have nothing saved at all, than I do people like that couple.

The cold hard fact of the matter is that if you're making fifteen or twenty dollars per hour, you can't afford the payments on such a single family detached house unless you've got a huge down payment. That's not likely to change unless we start being a whole lot friendlier to development, and in places like San Diego, there isn't room to do so even if we wanted to. There's too many people who want that sort of housing, and not enough land and not enough houses to go around. High demand, limited supply. Remember your first economics class. What does that do to price?

People will tell me in one breath that they don't want to deal with home owner's associations, then turn around and tell me they'd rather continue dealing with landlords. Landlords have more power than HOAs, and are less subject to moderating influence. If you're an owner, you have a vote and a voice in the HOA, and you can even run for the board yourself. If you're renting and don't want to follow the rules, the landlord will evict you and find someone who will. They have all the power they need in a vacancy under 3%!

There is always going to be a wider market further down the socio-economic pyramid. There are more folks making fifteen or twenty dollars per hour than forty. Even those making more have the option of buying cheaper housing, and there are those who do so, while those who attempt tricks to afford more house than they can afford regret it pretty much universally. If you buy the property, you owe the money and are paying the interest. Tricks like negative amortization, that make it look like you can afford more property than you really can, will come back around to bite you, with so few exceptions as to be statistically a non-event.

In California, townhomes and PUD developments are most often legally condominiums as far as title goes. It's just the physical set up that differs. Condominiums are multiply layered, stacked one on top of another all in the same building. Townhomes are typically only one unit high. They may be multiple floors and have shared walls, but no upstairs or downstairs neighbors. This improves the privacy situation, but it also increases the price, because land is what costs the most money, and there's only one unit on any given piece of land. PUDs are one further step up the line: They may be individual completely detached structures, but they share a common lot, so maintenance and such is usually shared, and you usually have to match the neighbor's decor. There may not be much space between units in a PUD, as I've said before, but there is usually some. All three usually have some sort of shared recreational facilities, as well, but not necessarily. This can be a very good thing. Lots of people who want a pool can't really afford the cost and the maintenance on their own, but spread it out between twenty or fifty or a hundred owners, and it becomes an entirely different issue. Lots of folks really like the community facilities offered by an HOA that they couldn't afford on their own.

There are ways to do each sort right and wrong. The sin most developers commit with PUDs and townhomes is trying so hard to cram as many as possible onto a given piece of land, that each unit has effectively no privacy. With pure straight condominiums, the main sin committed is failing to insulate each unit sufficiently from noise in the neighboring units. Doing it right isn't cheap, and cuts into the profit margin. This also happens with townhomes and some PUDs, but to a far lesser extent. A complex where the developer did it right will be a little more expensive per square foot, but will be a much better investment. Granite counters and travertine floors get old, get dirty, and eventually do need to be replaced. The fact that you and your significant other aren't entertaining the neighbors every time you get intimate, that you can have friends over without disturbing the neighbors, or even that you have a private little back yard to barbecue in, won't.

If you're careful in your initial purchase, you can be happy and private in a condo, townhome, or PUD for many years. If you fall for a bad unit with nice surfaces now, you're going to suffer. If you pick a good unit, the way that leverage works will quite likely leave you very happy with your investment. If you pick a bad one, not so much. If you pick a good one and decide to stay, you'll likely find that your cost of housing becomes a low fraction of what rent would cost before too many years have passed.

If you can't afford the payments on a more expensive property, it's not a good idea to buy it. But if you don't buy anything at all, the economic prognosis for lifelong renters isn't good. This means that if you can't afford the property you really want, it's still a good idea to buy something your family can live in. Condos, townhomes, and PUDs may not be as great as single family detached housing, but they're a long way better than renting, and you can use the leverage inherent in the way property values has worked for the last century or so to help you get where you really want to be more quickly and more easily. Even if you never move up, you have placed your costs of housing permanently under your own control, given yourself a voice and a vote in how things are run, and the odds are overwhelming that you'll end up in a much stronger economic position.

Caveat Emptor

Original article here

Lots of properties have some kind of problem with them. Maybe you bought in full recognizance because of something else about the property, but probably not. Mostly it's directly a result of not spending the effort to find a good buyer's agent. But whatever the cause, you're stuck with the property, and you've decided to sell it, but just like everyone else you want to get the best possible price.

Welcome to Bigger Fool Real Estate. That property is your problem. You want it to become someone else's problem. I'm speaking now as a listing agent, responsible to get the best bargain for the sellers. Getting a good bargain for the buyers is not the listing agent's responsibility. I have to tell the truth, but my responsibility is to get the property sold on the best possible terms. If I was your buyer's agent, things would be different, but right now I am postulating that I am not. (I don't do dual agency. Ever.)

I'm going to write about property with problems, but this is equally true of the property that doesn't have upgrades that competing properties do. People don't understand that upgrades get old, the same as the rest of the house, and they are attracted to them and will often pay outrageous prices for them. You need to discuss ways to effectively compete for buyers with your listing agent. A good agent is the difference between making it happen for you on favorable terms and not at all, but you've got to be willing and able to help with the necessary steps.

The first thing is to know is that you're definitely going to have to disclose the issue, and where and when you have to disclose it. Plan for it. It's amazing how often handling the disclosure right can gloss right over what might otherwise be a deal killer. People won't spend the utterly trivial amount of effort to find the good buyer's agent who will save them because they don't understand it's important. This can work to your advantage. This is one of several reasons you need a sharp listing agent.

If you've got an issue that might drive off buyers, you need more prospective buyers than otherwise, because you're going to lose a larger than normal percentage of them. As any buyer's agent knows, people aren't looking for a reason to buy your property, they are looking for a reason not to buy your property. Every property loses a percentage of prospective buyers, and even if they can't put their finger on why, properties with issues lose more prospective buyers. The way to even this out is an asking price just enough lower to draw extra interest. Most buyers are silly about low asking prices, and the more people who view your property, the more chances you have to get a buyer who doesn't care, or who thinks the lower asking price is enough compensation. If you don't price the property thusly, it'll sit on the market and you'll end up getting even less for it, if it sells at all. If you do price appropriately lower, a good percentage of the time you're even going to get two or more prospective buyers bidding the price back up a small amount. A good agent can advise you on this - what is enough to work and what's too much. It is not a matter of cut and try - you've got to get it right in the first place if want optimum results. In the situation we're talking about, you want and need lots of people looking at your property.

Clean and declutter the property. Make it shine as much as you can otherwise. Visual appeal $ell$. The situation you're looking for is a buyer who doesn't realize the problem exists, and good visual appeal can distract them from reasons not to buy your property. Avoid turning people off when you don't have to. Equally important, make seeing the property as easy as you possibly can. This is always important, but in a situation like this, it's critical. Moving out is an especially good idea in this case, if you can afford to do so, particularly if you've got children or pets.

Take good pictures for MLS and the advertising. People, particularly ones with weak or no buyer's agent, are silly about attractive pictures. Even otherwise perfectly rational ones who are aware of trick photography and Photoshop. Sometimes, they'll make up their mind they want the property before they actually see it, just from the pictures. They'll still want to look, but they're not careful. Lots of turkeys get sold this way. I don't advise trick photography or Photoshop, by the way - people will realize you were attempting to play them. But picking your shots and vantage points carefully can show even awful properties to good advantage.

De-emphazine anything that may point out your undesirable features or call attention to them. Don't try to hide it, but you don't want to call attention to it, either. Most people have holes in their perceptive ability big enough to sail multiple ocean liners abreast, particularly when it comes to looking at property. If one buyer spots it, the next one or the one after won't. This is why you want more people looking at your property than the absolutely perfect property next door.

Make sure the property is advertised where it will draw attention. You need a quick sale. You don't want people wondering why it's got a large number of days on the market - then they go looking for reasons why nobody else bought. Lots of people aren't interested in anything that's been on the market over thirty days, as in they won't even look at the listing online. If you fool yourself about property value for even a short period of time, or aren't willing to do what is necessary to begin with, you can cost yourself literally thousands of dollars for every dollar you think you're saving.

Know what kind of buyer are you looking for - unrepresented ones without agents, or ones where their agent is just trying to crank a transaction. Make certain they're able to qualify for any necessary loan before accepting their offer, however, because a large percentage of these can't, meaning you are wasting your time. The competently advised buyer who is ready to deal with your issue is a distinct second choice, because they're not going to offer as much, and they're going to walk away if you try to insist they pay what the property isn't worth.

The worst of all possible worlds is someone who insists upon perfection who suddenly realizes the property isn't perfect partway through the transaction - because they're going to bail out, and you may not get any compensation for them wasting your time and running your time on market counter.

To the maximum extent possible, just ignore whatever problem issues your property may have. Don't lie, and if someone directly asks, don't pretend it isn't there, but don't bring anybody's attention to it, and don't act like it's important, and you'd be amazed how often prospective buyers will pay attention to your attitude rather than anything else. You would be amazed how often unrepresented buyers, and buyers whose agents are trying to crank a transaction, never notice something that should be a deal killer, or don't pay proper attention to it. Actually you shouldn't - because that's probably what happened to you.

If you're in the position of needing to sell to a Bigger Fool, it's not an impossible task, but it is one where you've got to get it right the first time, and you need a sharp agent who knows what they're doing. A discounter or someone who just hangs out a sign in the yard is going to cost you more than you could possibly save over the more expensive agent who actually makes it happen on good terms.

If you're a buyer, none of these techniques are in any way a secret. They are in widespread use. If this bothers you, the best way to prevent it from happening to you is get someone who is going to point these issues out and compare them to other properties. In other words, Get yourself a good buyer's agent before you start looking. And if they won't point out these sort of issues, they're not a good buyer's agent and you should stop working with them and find another agent who will. These folks are trying to unload their problems, and you don't want to be their Bigger Fool.

Caveat Emptor

I hear people complain that they've never had a good buyer's agent, that they can't find one, or that they one they had hosed them (Sometimes, they're wrong about that, by the way). I also regularly get email from people claiming they did fine without one, often despite evidence in their own email that says they didn't.

Finding a good buyer's agent is trivial. Literally as easy as moving your eyes and turning your head to look around. Open your phone book. Run a search engine. You get the idea. At last resort, stick your head out the window and yell. Seems you can't swing a dead cat without hitting a real estate agent.

The one thing to understand, and you need to understand it before you start looking, is that for every good buyer's agent out there, there's at least one not so good one. The best way to handle this is by giving every agent who wants one a chance to work with you. You have literally nothing to lose beyond a little bit of your time. But while you shouldn't give anyone an exclusive agreement, there is no reason whatsoever not to sign a non-exclusive representation agreement. A non-exclusive buyer's agency agreement is quite literally a bet that consumers cannot lose. And here's the rub: The agents who won't work without an exclusive contract are the ones that can't really compete. The agents who will work on a non-exclusive basis are the ones that know they're good. I don't care whether someone is working with just me, or has ten other agents on the line. I am willing to make the bet that in heads up competition, I can beat anyone else. If I'm wrong, then I get the important benefit of knowing I need to improve. And the agents who are not willing to make that bet are among the ones you should avoid at all costs. Nor does the mere fact you have an agreement mean you must continue to work with them. On the contrary, all of the good agents maintain something close to a "fire me at any time!" policy - it's implicitly part of the non-exclusive agreements I advocate.

There are only two reasons why you didn't get a good buyer's agent: ignorance and not trying. Ignorance as in you don't know that a listing agent is working to get the best deal for the seller. That is their contractual and fiduciary duty. A seller wants the highest price, quickest sale, with the fewest problems possible, and it is the listing agent's responsibility to see that they get it. If you bought when there was a better property cheaper, if the seller would have negotiated a better deal, if you don't understand that the disclosure they bury in the middle of 425 other pieces of paper is really important, that's not the listing agent's problem. Ignorance as in you don't know how critically important it is to get expert help in the biggest transaction of your life. Ignorance as in you didn't do the tiny bit of research that lets you know not to sign an exclusive agency agreement. Ignorance as in you don't know how much you don't know about putting all of the information in the proper context, whether something is trivial or whether it really is a deal killer - information you have no hope of knowing unless you make a habit of buying and selling real estate in this area. Ignorance as in you don't know that the number one set up for buyers who spend too much to buy properties they should not have considered purchasing at all is that they don't have an expert on their side.

Not trying explains itself. You just didn't try, whether because you thought it wasn't important (there's that ignorance factor again), or because you thought you could save yourself money by not having one (ignorance yet again). Go ahead and tell that to a roomful of agents sometime. Buyer's agents or listing agents or both, it makes no difference. The good ones will all laugh because no matter how often they hear it, they've learned enough that it's still funny, and we're always encountering examples. If it isn't the funniest thing I've ever heard, it's a real contender. When I try to explain what they did wrong to people who ask, they say something like, "You're blowing the tiny details way out of proportion!", usually in quite a defensive manner. Ladies and Gentlemen, real estate is all about the details - lots and lots of details. Details ad nauseum, and even small details can make a difference of tens of thousands of dollars in the value of a property. Furthermore, it is precisely those details upon which your agent will be judged. It doesn't do yourself any favors to pretend you didn't cost yourself four or five times or more what you saved. If your agent was yourself, look in the mirror for the person to blame. There is no one else. If the ego thing is more important to you than the money, that's fine, but you need to admit it to yourself at least. Otherwise, get a buyer's agent before you start looking. A good buyer's agent is far more important than a listing agent. There is no other factor that even compares for predicting how well you will do in real estate. Get more than one if you like. As long as you don't sign any exclusive agreements, you can always hire more and fire the bad ones you already have.

The big thing to evaluate agents on is not experience, but attitude. Not have they been doing transactions for eighty-three years, but are they going to tell you about the problems and issues they see with this property? I would work with a brand new agent with the ink still wet on their license who will bring your attention to issues over the most experienced agent in the world who won't. Heck, I'd advise still working with the newbie even if the more experienced agent also will. In my personal experience, an agent who says "I've been doing real estate for (some number of) years!" is most likely about to tell you what they've been doing wrong for all those years. Experience doesn't make it right, particularly in the face of the complexity of real estate and the fact that most state regulators don't know any more than beginning consumers, and it can be almost impossible to prosecute for some of the worst abuses there are (e.g. buying listings)

It may take some cut and try for find a good agent, but firing a bad one takes no effort and shouldn't require a confrontation - if you signed the right agreement in the first place. You just stop working with them. Whereas if you sign an exclusive buyer's agency agreement, firing a bad one takes a formal release, and you can't force them to do it. It's bad business, but probably the majority of brokerages won't sign such a release. What they'll do is talk like they will, in order to get you into the office, but if they can't get you calmed down or substitute another agent, they refuse to actually sign. If you sign a non-exclusive agency agreement, on the other hand, you just stop working with them. If there was something they showed you that you liked enough to buy, you would have already made an offer. Furthermore, you probably wouldn't want to fire them. Therefore, you just leave that agreement in place and stop working with them, and your problem is solved. Pretty neat, huh?

Caveat Emptor

Original article here