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Several items have come up recently, both in my practice and in the news, regarding the way that clients use the advice their Realtor provides to them in the performance of their agency obligations. The general point of these stories and situations lies in one major question: whose decision is it to buy a property? And how do clients use the advice they receive?
A few weeks ago I was showing properties to a young woman who had come to me through a recommendation. She was looking at listings in a part of town that has a lot of renovation activity, and that she knew had some “rough edges” but was in the process of being “gentrified,” for lack of a better word. She found a property that she liked very much in a location that was further from the real frontier of the neighborhood than many we had viewed. She asked me the question I expected: “Is this area safe?”
I explained to her that this was a question I really couldn’t answer for her. I would never substitute my perception of safety, being male and at 6′ and well over 200 pounds, for hers. Nor would I want her to do so. I gave her what is my standard advice: I provide on this website a link to the Baltimore Police Department’s crime statistic page, where she could look up the various types of crime stats for a radius around that address. I also encouraged her to visit the area at various times of day when she would conceivably be leaving, coming home, or having guests over, and to get her own impressions as to whether she felt safe living her life there.
Obviously, that wasn’t what she wanted to hear. My impression at this time is that I lost her business.
Then, my manager puts a copy of a recent Baltimore Business Journal article in my mailbox at the office, talking about how buyers are now starting to sue their agents because of the advice they gave a few years ago to buy a house at an inflated price, or to buy more house than they were able to afford, etc. My mind went back to this young woman, because it has always been my policy never to forget two very important principles, first: Its not my money. I’m not the one who is going to have to budget for the mortgage payment, and I’m not the one who will be eating peanut butter and jelly if something goes awry. Second: Its not my home. I’m not going to have to put up with the nuisance that is associated with any given neighborhood… and there can be many different types. Parking, traffic, nuisance crime, taxes… everyone has a different irritation threshold.
Real estate agents should never assume they can make decisions for a buyer, whether that means telling a person that an area is safe, perfect for them, or that a particular mortgage is a wise decision. My job is to help that buyer become educated to the point where they can make that decision for themselves. Otherwise, I think that court cases are inevitable, and probably richly deserved.
I hope that this message finds you recovered from the holiday rush (and your New Year celebrations!), and starting to survey the landscape of 2008.
There’s been a lot of media attention in the last six weeks to the state of the housing market and the economy in general. The messages have been mixed, at best, and confusing. So-called “experts” duel with each other over whether the housing market has reached a bottom, and whether we’re headed for a recession — or are already in one.
The Baltimore region, lets face it, has fared pretty well in comparison to many parts of the country. Maryland’s economy is strong, unemployment is below the national average, and jobs here are growing. Don’t let the national media scare you away from the market. We are still undervalued compared to other east coast cities, and especially to our nearest neighbors down in DC.
Ready for a prediction??
Well, from ‘down in the trenches’ its my opinion that we will see some stabilization in the local housing situation come spring. I think that we’re scraping along the bottom right now, mainly because January and February tend to be the slowest months in the calendar. There was a slight acceleration in the market before we went into the holiday period, and with interest rates still low and a good amount of inventory, the market will improve when the weather does. Selling a property will still take a little longer than in the past, and it will be even more important that the property shows itself well from the very start. Buyers will probably have to jump through a few more hoops with their lender of choice, simply because credit will be tighter — but it will still be available to qualified buyers. If you need advice about a particular property to sell, or on what lenders you should be considering and working with, please feel free to call or email.
New for ’08, and Coming Soon!!
Many of you have used my website — www.charmcityrealestate.com — as a resource for information and for keeping up with the housing inventory, either through a direct MLS search or an automatically emailed update of listings that match your interests. The site was designed six years ago, and has been updated regularly with new functionality — if you haven’t visited it recently, go to the main information page for Buying a Property and you’ll see a new calculator that helps a homebuyer factor in commuting costs when comparing two properties. If you’ve ever been in the situation where you were weighing a cheaper house with a longer commute versus a more expensive house with a shorter drive to work, you’ll think this new bit of technology is pretty useful.
With the increasing use of larger, flatpanel monitors and the passage of time, it just seemed like this slow period was the perfect time to raise the hood and begin an overhaul of the nuts and bolts. So, I’ll be keeping you updated on the timetable for the debut of a new CharmCityRealEstate web portal. We’re putting it on a different software platform and changing the way much of the site functions. The display will be wider to better fill most people’s monitors, and we’ll be adding video capabilities and moving my blog from its current third party site right into CCRE itself.
I hope to have the chance to speak with each of you personally very soon… and until then… all the best.
— Wayne
Our system of MLS’s is a wonder of businesspeople getting together to expand competition and serve the public, while also serving their own interests. Broker reciprocity is a wonderful idea that has created an enormous real estate industry which, because real estate agents are all independent contractors, also remains vibrant and competitive. So, you’d think that a Republican administration who loves big business would leave us alone, right?
Nah. Not so much.
The FTC has been trying to treat the MLS as a publicly-owned and regulated utility (which, as a stockholder of our local MLS, truly amazes me) by telling these organizations who can be members and trying to have their rules and regulations overturned in court. In October 2006 the government filed suit against a Detroit-area MLS because they had prohibited “exclusive agency” listings from appearing in the database. The current crop of discount brokers love to use these type of listings for a variety of reasons, but to try and get around legal jargon, these type of listings basically turn the MLS into a bulletin board for properties that are glorified “For Sale By Owner” properties. Most of these brokers want you to contact the owner directly to set up showings, and if a buyer contacts the owner directly, that owner has no obligation to pay any commission. Since buyers routinely surf housing sites that pull information directly from the MLS, the possibility that a buyer could contact a Seller directly and completely avoid the services of a real estate agent, or paying for those services, is fairly high.
Now, there are quite a few “FSBO” websites out there, so there really is no reason why the stockholders of the MLS should have to provide another opportunity for Sellers to evade paying for their services. Thank goodness a judge has finally had a chance to look this case over and basically agree with the real estate industry. Judge Stephen J. McGuire found that the government’s assertion that the MLS had tried to “unreasonably” restrain or “substantially” lessen competition had not been adequately proven, since discount real estate services still remained widely available in the region.
The story, in today’s version of the Wall Street Journal, is some good news in the middle of a bleak real estate outlook. The government will appeal the case, unfortunately, but a first round win is a sweet one, indeed.
Today’s Wall Street Journal gives us a glimmer of hope as far as existing home inventory is concerned. According to figures compiled by Zip Realty, inventory in eighteen metropolitan areas (including Washington and Baltimore) declined in November.
Washington had a significant 4% decline in housing inventory. Since its the heat from rising Washington prices that have made Baltimore’s cauldron boil over the last few years, this figure is at least as important as the fact that Baltimore’s inventory also declined by a smaller — but still larger than average — 2.6%. This is the second month in a row that monthly inventory figures have declined. While this is a normal trend for this time of year, its nice to know that there is SOMETHING about the current market that is returning to NORMAL.
Unfortunately, today’s Baltimore Sun contained information that is more worrying. The story has to do with a dispute between RealtyTrak and local auctioneers over the amount of increase in foreclosure auctions in the Baltimore marketplace. Local auctioneers (probably the more accurate source of information, in my opinion) estimate that foreclosure auctions have increased on the order of 48% in 2007 over 2006. RealtyTrak came up with the amazing figure of 344% increase for the same period.
As someone who routinely peruses the auction page of the Sun, I do not believe that the number of auction ads have increased by that order of magnitude. But 48% is still ominous, dangerous, and something that we hope does not continue as we head into the spring.
The last few months have been discouraging, to say the least, in the way that the economy and our government has responded to the sub-prime mortgage issue, and the spreading instability in other areas of credit and financing.
At first blush, the concept of preventing the re-setting of mortgage rates for a period of time could have the effect of reassuring financial markets and the consumer that the worst is over. I’ve felt for quite awhile that the main problem — at least in our market in Baltimore — is that the consumer was scared to jump in. Consumer confidence numbers have sagged to very low figures, even as rates stayed reasonable and the employment data remained strong.
But preventing these financial instruments from re-setting on schedule might also just kick the can down the road until the end of the freeze. (Might that be long enough to prevent the current Administration from bearing the political brunt of the resulting damage to the economy? I hate to be so much of a skeptic… and yet, nothing in Washington in the last 7 years have given me any reason to be charitable.)
The other result could very well be that the investment funds and institutions who bought into these financial vehicles because of the out-year prospect of increasing return on their investments might also be destabilized by the freeze of rates at their introductory levels. This could have the opposite of the intended effect, further increasing the uncertainty and moving the country into a full-fledged recession.
How nice it would have been if there had been some regulation of these investment practices at the start. Wall Street will always find a way around current regulation, it seems, to create some new product that blows up in people’s faces (after the traders have made their commissions, of course!).
It should be an interesting winter.
Syndicated real estate columnist Ken Harney had some good news in his column for Friday 8 June, at least for the established, full service brokers: the tough market is causing average commissions to rise for the first time in years. This in spite of the rise of the discount, “no service for no fee” brokerages in the last five years.
While the rise is not going to break many sellers’ piggy banks open — from 5 to 5.2% — it still reverses a trend that brought averages down from nearly 7% ten years ago. But it also seems to be presaging hard times for the new kids on the block: the cheapskate companies that specialized in sellers who didn’t want to pay for anything.
One agent quoted in Harney’s column, who is affiliated with an Assist-2-Sell franchise, stated “One of the biggest misconceptions consumers have is that you need to pay full price to get great service.”
Oh, really? Well, how about the old saying, “You get what you pay for.” I think that most consumers have seen ample evidence in every industry in this country of the rock-solid economic foundation of that principle.
Its true that thousands upon thousands of real estate agents just in Maryland alone have never sold real estate in a market where listing on the MRIS wouldn’t sell a house in days, if not hours. Forget about big advertising campaigns, targeted markets, direct mailings; many of these people have never really had to consider them. They were very fortunate.
They are also now having to refinance their mortgages because they have no business. And the listings they do have aren’t selling, because they never bothered to put certain tools in their kit that would let them weather the storm of a down market.
The bottom line, which shouldn’t be a surprise to anyone, is that in a down market it costs more to market a property. Agents need the promise of more money to front the credit for the marketing. Period. You really do get what you pay for.
Watching a PBS evening investment show last night, I was suddenly face to face with a nice looking, silver-haired gentleman who was ardently pushing stocks as the only investment that really paid off in the long run. He looked the part of the sage advisor, and was slinging his hash with a smile on his face. “Exactly what I’d expect a stockbroker to say,” I thought to myself.
One of the primary theories put forth by NAR Chief Economist David Lereah is that the current stock boom — past Dow 12,000 and now 13,000 in an amazingly short time — is in part due to the fact that the housing boom is over and that lots of investment money has been shifting out of the nation’s housing stock and into equities. I can only imagine that this is a normal, routine cyclical process.
There are gallons of statistics that get thrown around in this debate: annual average return of the stock market vs. real estate appreciation, pros and cons of the taxation of real property vs. equities. In the end, you need an accountant to really give you an idea of which does best for you in your tax bracket, with your tolerance for risk and so on. But this kindly looking gentleman on the television last night made it seem so cut and dried. Stocks win. Game over.
Call me a skeptic. Perhaps I have too many memories of the stock bubble of the turn of the century. How many of us real estate folks got 100 shares of the Realtor.com IPO, watched it soar to be worth tens of thousands of dollars and then fall to earth again before the rules of the IPO would let us unload it. I won’t even go in to my well thought out investment into the now non-existant Pets.com. Or the fact that I managed to buy into Microsoft just as it went from technology high-flyer to stagnant behemoth. Vista, shmista.
The fact no one wants to admit is that hardly anyone really makes ‘average’ returns. The average is just that: some statistical melding of all the people who make good, educated or downright lucky decisions with those who don’t. I’ve shared some of my dogs, but I also have made some good stock investment decisions over the years. But my average is dragged down by my losses and, as I age, I feel even more sorry for the folks who were planning to retire in 2000 or 2001 and who saw hefty percentages of their retirement income vanish almost overnight.
I’ve also lost money in real estate too — and made some. But the numbers we’re talking about pale in comparison to the amount of money that has vanished into thin air on the whim of the equities market. Most Americans — although they may be tied to the Dow Jones because of the equities in their 401k retirement plans — still view the stock market as too risky for people with average jobs, moderate incomes and some level of education less than an MBA. Although technically a slice of a business, a stock certificate is really only a piece of paper. You can’t live in it, rent it out, develop it, or sell it for a substantial sum even in the worst of times. The number of large, supposedly solid, companies who have ended up in bankruptcy in the last decade point out that its not just the Pets.com’s of the world who disappear in a squall of worthless paper. That’s one reality that the smiling gentleman on television just doesn’t want to talk about.
Real estate, on the other hand, is a market that is much easier for most people to understand. They have a mortgage, so they know what it means when rates are high or low. They see the “For Sale” signs on lawns or in windows and they know when inventory is high or moving briskly. They know when people are losing their jobs and economic growth is sluggish, which means that property might not be in demand right now. They know what neighborhoods are desireable to them and which ones are less attractive. As professionals, we have the responsibility to provide the specific information that helps our clients make educated choices about a particular piece of property — but in the end it is their decision to make, and most people feel qualified to do so.
The stock advisor ended his commentary by admitting that everyone should own their home. But he definitely left the impression that other investments should be in stocks alone. I’m sure that’s what the inhabitants of the financial markets dream about.
I don’t think its a good idea. And I don’t think that most citizens do, either.
The public doesn’t know, nor do they appreciate, how often we work for free. Worse yet, they don’t know how often we work, pay for advertising and actually LOSE money on properties that don’t sell, buyers that don’t buy, or deals that don’t happen.
When I first became a real estate salesperson and I saw the part of the buyer agency agreement where you could specify a retainer, I laughed to myself. I didn’t take the idea seriously, mostly because I knew how difficult it would be to get buyers to do it. While homeowners just expect that we will put out gobs of our own money to sell their property, despite their stubborn resistance to our marketing suggestions and pricing advice. Then, without doubt, they will complain about our commission to whomever they speak — particularly when their house doesn’t sell in two weeks like it would have if it had been listed two years ago.
If it weren’t an antitrust violation, I wish that we could band together to demand retainers from buyers and sellers upfront, to help keep THEM as serious as they want US to be. The buyer who has some serious bucks invested in their chosen agent would be less likely to make that choice lightly, abandon that agent at the drop of a open house sign, or waste hours of time and gallons of fuel before deciding that the time just isn’t right for them to buy now. Thank you so much for your efforts. Buh-bye.
Imagine how open a seller would be to our marketing advice and suggestions on pricing if they had to pay a lawyer-style retainer upfront for our services — which they would only recoup out of the total commission when the house settles. I can foresee a lot fewer temper tantrums and unreasonable last minute demands at the settlement table if they had an initial investment in real estate services on the line.
But, of course, all of this is wishful thinking. Such appreciation for our services will never spread among the general public when many of our colleagues don’t have the same appreciation for THEIR own reputation, time and service. Given the ‘self-employed contractor’ model which is the standard in this industry, you have so many people willing to ‘cut corners’ or sell their soul for a commission that the amount of the commission itself always seems to be open to cost cutting.
We can’t expect the public to value our time and service until we do. Period.
The news a couple of weeks ago was fairly stark. In the first two months of the year 2007, a study of 18 major markets showed that only two of these markets had seen a decrease in real estate inventories of existing houses for sale. For the first time in weeks, we were hearing the media blather on again about the ‘bubble.’
The two markets who had the enviable decrease? Washington and Baltimore.
The result was not a surprise to those of us who work in this region. We’d seen bad days, especially last fall heading into winter. The phone wasn’t ringing. But, starting in mid-January, things were beginning to pick up, and the first quarter was starting to look pretty good as contracts, settlements, and new buyers were coming in at a nice pace.
The movement of the two cities into one large economic megaplex has been gradual, and many long-time residents of Baltimore, in particular, may really not be aware of it. Roughly 35 miles separate the downtowns of the two cities. Baltimore has traditionally been the larger of the two jurisdictions, but Charm City falls behind when metropolitan areas are included in the count. Washington’s sprawl has been of epic proportions, especially into Virginia — where smart growth has rarely been talked about and never really seen.
Increasingly over the last five years, Baltimore has been evolving into a different type of bedroom community for the Nation’s Capital. An aging, old-line industrial matron, whose empty factories and deteriorating manufacturing infrastructure has given her a gap-toothed smile, Baltimore has been getting face-lifts around her digital harbor, from new high-tech industry to posh waterfront condominium developments. Several cranes dot the downtown skyline, and new clusters of skyscrapers are rising in previously low-rise districts and vastly expanding her visual impact.
Yet state and federal authorities are ignoring the desperate shape of mass transit in the city, and in how the two cities connect with one another. Light rail and subway plans are talked about in generational time spans, and commuter rail lines between the downtowns are heavily used and overcrowded right now. Highway congestion already ranks as some of the worst in the nation, and the resulting ozone and air pollution alerts make summertime heat and humidity even more unpleasant and unhealthy.
We could be looking and the rebirth of a city, and its evolution into a different kind of satellite city then we have seen before. But without adequate transportation infrastructure, both cities may choke on their own exhaust. This is primarily the responsibility of Annapolis to fix, and the time to start was yesterday.
