Are 1% Commissions Still Around?

Lately I have heard about a lot of people asking for 1% commissions.  They think the market is "hot" and the listing agent isn't doing any work to move the house.

With all of the new laws since the 2006 bust, agents work harder than ever.  What surprises me though is how sellers think the system works.

If you want to get the most for your property, the first thing to do is clean it up and stage it.  If I do this as your agent, that costs money.  Real money, and I don't get it back unless your house sells.

There are two basic methods for getting the highest price for your property.  Right now the method I see is slap a high price on it and hope you find a sucker or the market catches up.  When you see a home that has been on the market for 180 days, 360 days or even longer, you know what is going on as a buyer.  Buyers agents skip those homes.

The second model is to use the auction format.  Price it low or at $0, and then accept bids for a very short period.  Many auction houses charge as much as 10% and tack on another 10% buyers fee!  That is a 20% commission for an auction.  Why are they so expensive?  The marketing costs for running a proper auction are astronomical.  Hiring bands and catering are not unheard of.

The idea is to build a frenzy among qualified buyers.  You did only want offers from qualified buyers didn't you?  Another service the agent has to perform.

My approach is simple.  If you are willing to sell your house at a low enough price, I'll sell it for a low commission and either buy it myself or quickly find an investor to do it.  The below market price means less work for me, quicker sale for you, so I can get buy with a lower commission.  If you want at market pricing, and I need to spend money on four color flyers, and direct mail cards, and spend hours on the phone spreading the word about your house, I am going to ask for a market priced commission.

Finally if you are asking an above market price, then my commission will go up accordingly.  This is where people get is wrong and end up advertising for their agent.

Real Estate is a simple game of numbers.  If your house is priced on market, there will be many qualified buyers, so finding one or two isn't that hard.  If you price above market, there may only be a few qualified buyers willing to pay your price in the world.  Right now most buyers are still "deal shopping".  The economy isn't strong enough for them to just go out and buy at any price.

Finding that magic buyer who has the ability and desire to pay above market pricing takes a lot of work on the agents part.  That is why the auction houses charge the fees that they do, and prefer to only feature unique high end properties which are difficult to compare on a market basis.  The price is simply opinion and willingness of the buyer.

When you meet with an agent about listing your property for sale, make sure you understand where you home is priced on the market and make sure the agent has the resources and skills to sell your house, not just use your front yard as a billboard.

What you pay for commission is your choice.  Choose wisely.

Orange County Posts Lowest Inventory of Homes in 3 years

The Orange County Association of Realtors has published a report saying that 2013 has the lowest number of new listings in the last three years.  My neighborhood is a perfect example.

When I bought my home two years ago, there was at least one if not two, three or four signs planted in the front yards on every street.  This year you have to go several blocks to find a single home for sale.  What gives?

There are several things going on.  First is uncertainty with the economy.  Simply put, people are still hesitant to sell and move up.  The average time in a home is increasing.  Next the slight rise in home values has slowed the foreclosure and short sale market just a bit.  One of the agents in our office is still moving a noticeable number of short sales, but he is putting a lot of miles on his car to do it now.

Loans are also harder to come by as VA and FHA loan limits were reduced.  This increased the number of homes requiring a traditional 20% or 30% down payment.

So what does this mean to you?  If you are thinking of selling, it means you will likely get a much more reasonable price in a reasonable amount of time this year than you would have since 2006.  If you are considering selling, call me and we can talk more about what is happening.

If you are thinking of moving up, now might be the right time.  All indications are that home loans won't get much lower interest rates for many years, and locking in your property taxes at the lower values will pay off if you stay in your next home for any amount of time.  

If you are trying to buy, you are in a different boat.  The "good deals" go very fast.  Waterfronts in Huntington Harbor under $2 Million were plentiful two years ago and average days on market was nearly 300.  Now, if they aren't a tear down, they sell in days when priced right.  I have several buyers who have cash that we can't find a deal for.  A couple of homes that I felt were a little overpriced and have been on the market over two years have just gone into escrow.  It is a tough time to be a buyer, especially an investor buyer.

Newport Beach, Costa Mesa, Seal Beach, Garden Grove and Fountain Valley are all seeing the same trends as Huntington Beach.  This isn't just a waterfront property issue, it is across all of Orange County.

As a Realtor, our jobs are changing yet again.  There has been some major changes to the laws, lending and paperwork, creating more work for us.  What little we might save on advertising because a property sells quicker is spent advertising to find listings.  Agents are all over each other trying to get the next listing.

At the same time buyers agents have to work a lot harder to find a property that fits their clients needs.  Gone are the days of 30 or 40 homes fitting the size, price and location a buyer wants.  It might take several months now of looking to find even one that fits the buyers wish list.  This week one came up that was close for an out of town buyer and before I could get them in the house, the seller had accepted an offer.

If you are thinking of buying or selling a home along the coast in Orange County, please give me a call.  If you know someone who is interested in buying or selling a home, please pass on my name and number.

Scott Bourquin
Keller-Williams
www.socalbeachrealtor.com
dre# 0191198
714-594-SELL (7355)

2013 Real Estate Market - Looking Forward

The Real Estate Market is shifting once again.  At the start of 2013, we are moving into really new territory.   Many other pros are a little unsure of where they are going with the 2013 Real Estate Market.  When I say pros, I mean agents, brokers and investors.  A salesperson from one of the major real estate websites called me, asking me to “fill in a great spot” that just opened up in my section of Orange County.  That call led to a very interesting conversation.  Because of that conversation, I decided to write about my observations as a buyer, investor and Realtor©.

It turned out that one of my major competitors and two smaller ones were pulling their ad campaigns from his company’s website.  During the conversation, he made a funny comment.  He said, “It is just like all the agents have decided to roll over and die.  They are all giving up.”  That got me thinking.

He was right in more ways than he realized.  He was also missing the real issue.  It isn’t the agents that have died, it is the market.   Yes many agents are leaving the business, but that isn’t the big issue with todays Real Estate Market.

In the area I focus on, my “farm”, listings are nearly zero.  Three years ago there would have been 20-30 signs at any given time.  Last weekend, there were just four.  Three of these are simply over priced which will require a very willing cash buyer.  I even like one of the homes, but it is priced too high and out of my budget.  Three of these homes also have been on the market over a year, one of them over two years.  The home that has been on the market the longest is held open just about every weekend now.

That house is an odd case.  It really is a great home and it is in a great location.  The problem is that it is a “middle house”.  There are significantly nicer homes and a few “fixers”.  The cash investors are buying the “fixers” and the cash buyers are going for broke.  My guess is they agree with me on inflation.  I think Real Estate is a better hedge against long term inflation than gold.

In a high dollar market like Orange County California, there is another issue.  Lenders aren’t lending the way they used to.  The ratio’s that we as agents learned to use for the past five or ten years are no longer valid.  Higher credit scores are required just as much as lower payment ratio’s.  

Being self employed, my income is avaeraged.  When I bought my home, I had a 52% ratio. That means the day I bought the house, 52% of my take home pay was going to be used for the monthly payment.  While that sounds crazy, it really wasn’t, if I was right. 

The bet I made was that the market prices had bottomed, interest rates were near bottom and I was buying my home below market due to the sellers stress.  So far it looks like I was right or lucky.   I bought into this market with a fixed rate loan, and knew that my wife would be going back to work bringing the 52% closer to 40%.  

Today, that kind of loan isn’t going to happen.  A payment to income ratio with 40% of take home pay for the house payment would be considered quite high now.   A couple of the loan officers I talked to at the big banks are saying they would like to see 30-35% ranges.

If I were house shopping today that means that I wouldn’t be able to buy anything close to what I live in now.  

This is the root of the problem with the Real Estate Market, not the agents.

When you take out “liar loans” and cut the maximum payments, you can see why the average buyer isn’t buying.  You can also see why sellers aren’t selling.  Nobody can move up.  The few people who I am lucky enough to talk with about listing their home are usually moving inland to lower priced property or out of state because of our new taxes.

House prices are creeping upwards here in Orange County, and I believe this is due to simple inflation, not a recovering market.  Days on Market is usually a great indicator to tell the status of the market.  That number is dropping, which in “normal” markets would indicate a move to recovery.  In this case, it is merely a symptom of the shrinking Real Estate Market.

What does it all mean, and when will the market recover?

For buyers, it means you need to be prepared.  You need at least one if not two loans pre-approved before you even start shopping.  Why?  Because when your agent does find you that house, you’ll need to move quickly before the seller changes their mind or gets an offer from someone better prepared to buy.  Sellers that do sell aren’t playing games and have cash offers lining up.

For sellers, it means that you also need to be prepared.  You should clean up the house to get the most you can for it, and be ready to move when a good offer comes in.  You also need to be ready to find out the buyers really can’t buy.  Even two pre-approvals may not get a loan these days.  

Sellers also have the advantage of being able to select from many hungry agents who are getting back to work.   Some are still figuring out the new rules and others are out door knocking for listings.  Either way, sellers need to be careful.  An agent trying to sell a home under last years rules won’t get you the best price or deal you can get.

There are still a few lazy “experts” that live in an area and have a listing or two.  If you do a little homework before listing your home, they are easy to spot.  All you have to do is read their listings and look at the details.  Don’t select an agent because they are your friend or neighbor, select an agent who will work for you.

When other agents are looking at the wrong information on the MLS, your house is going to have a hard time selling.  Recently I previewed a property after receiving several calls about it.  From the MLS data, the home was a deal, and I had a cash buyer who would be very interested.  While doing my research, I found the listing agent listed the monthly land lease of $4,000 as the annual lease.  Even after I pointed out that he had understated the annual lease by $44,000 he left the listing as is.  $44,000 per year is an entirely different category of buyer in this market.

For agents, the 2013 Real Estate Market means you have to go to work.  Not work like 2006 where you could plug a sign in the ground, and write a contract.  Work like really knowing your buyer before ever start shopping for them.  Anyone can surf the internet and find houses.  Our job as agents is to represent the buyers and find them a home, investment and help them fulfill dreams.  Todays challenge isn’t selling a home, it is fighting for the listing.  

Working with buyers is a whole new dynamic of research.  Knowing your area is key, and knowing when to let go of a buyer is also a skill many have forgotten.  When buyers are willing to go anywhere, you can’t help them.  Even thirty year veterans like my mentor can’t know every area in Orange County.  

While all of this is bad news for the local Real Estate Boards, since membership will likely continue to decline for the next two years or so, it is good news for agents willing to work.  Full commissions will be justified as you become the expert helping buyers and sellers navigate the overload of information and correct the misinformation from the internet and the press.

Like all things, the 2013 Real Estate Market will come and go, and next year will be different.  For now, hold on, it is going to be a rough ride.

Authors Note: Scott Bourquin is a Real Estate Agent and investor with Keller Wiliams Realty in Newport Beach California representing the Orange County Coast.  Not all areas will experience the same Real Estate Market.

Real Estate Marketing Online

Real Estate has been in my blood since I was a little kid.  I never could understand why my dad always rented his buildings instead of buying them.  When I was many years younger, I entered the market during a major upturn and bought several properties which ended up creating a pretty significant cash flow problem for me.

Like all addicts, I couldn't let go of my real estate holdings no matter how much money I was paying for other people to live in them every month.  Then it happened. Positive cash flow.  The reason I have a real estate license stems from that first positive cash flow check.  That check got my wife hooked too.

Today I am still running my online marketing business full time and investing in real estate for my own use.  As an agent at Keller Williams Newport Estates, I am always looking for the "deal".  If I find something that I can't fund or isn't exactly what I am looking for, I have a few friends who are also investors, so I share the deals with them.

When I do find a deal, my friends can't figure out how I found it.  Once in a while one slips in that isn't a deal because the other agent "accidentally" listed the monthly land lease for the home as the annual lease.  That $35,000 per year "accident" made the property a smoking deal on paper, and a horrible deal at the table for an investor.  Showing the property I was admittedly embarrassed that I didn't catch the mistake before wasting my friends time.

My list of clients is only about 15 people at any given time.  I don't want any more because I can't possibly dig for that many deals, and if they are all after the same type of deal, who am I really working for?  I know agents that have a staff of people collecting names and information to send out emails and listings on a daily or weekly basis.  You need a lot of volume to pay for that, and these agents rarely find their clients a great deal.  They are usually closer to market pricing or emotional sales.

For me the emotion should be taken out by clearly defining what the buyer is looking for first.  When they say "I'll know it when I see it" they are saying one of two things.  Usually they mean "I don't have a clue what I want, or what is happening in the market so I want you to show me." or they mean "I don't trust you to find a place for me, I need to look at them all."

Before I was a licensed agent, I was in the second group.   I had so much trouble with agents I created an ap to help them "score" homes before they showed them to me.  The ap isn't yet for sale because I figured out some flaws while I was getting my real estate license.

The real secret to finding a deal is understanding how the internet works and understanding that most agents don't have a clue.  They put their best foot forward on the MLS and maybe on their website and then transition to what my friend and mentor Jeff Walker calls "Hope Marketing".  They hope that somebody stumbles across the home among the thousands of other homes in the area and makes an offer.

With all of the tools and resources out there that teach online marketing I am amazed at how little real estate agents really understand.  When I wrote The Easy Guide To Real Estate Marketing it was intended for brick and mortar businesses, but any agent with an office address can use the same tools.

The biggest mistake I see agents make is using generic auto email programs.  The "new listings" are sent out and eventually end up in the spam box.  The mass mailer approach might land one or two sales a year but just about every agent I talk to complains about the lack of buyer "loyalty".

Buyers don't want spam, they want an agent who listens and gets them the moon for the price of air fare to San Francisco.  The best buyers agents have to educate the buyer and put a lot of work into finding them a home.  In the Orange County coastal market today, there is a lack of inventory or homes for sale and a lack of buyers with the cash and desire to move.  Loans in this market are tough because the home values are still quite high when compared to the national average.

I realize for a solo agent working for a broker, hiring an SEO or online marketing company like the Bourquin Group can be prohibitively expensive.  On the other hand getting a copy of the book containing a big percentage of our secret sauce can be an investment in your business.  Don't get left behind and don't spam your buyers.  Get online and get marketing the right way today.

If you are selling a home, and don't feel like your agent is getting the job done, grab a copy of the book and help them out be doing a little marketing on your own.