Andrew Wetzel's Musings

July 22, 2017

Escalation Clauses: Let the debate begin!

Filed under: Uncategorized — awetzel @ 2:31 PM

Over ten years ago when the Real Estate market erupted, creative agents sought ways to promote and protect the interests of their clients. Listing agents advertised properties before exposing them to the MLS hoping to generate a quick sale and perhaps to increase the odds of their getting “both sides”. Many showings started at an “open house”. While much of what they did was in fact creative, some of it really ticked off buyers and their agents. Some listing agents actually over-stepped, assuming they had a “hot listing” on their hands. Many property listings EXPIRED with catchy comments like “Won’t Last!” or, even more humorous, the public remarks section specifying a long passed date and time when offers would be presented to the seller (many agents fail to remove such dated announcements). If the strategy worked the result was multiple offers. I personally know of one listing agent who got almost 30 offers on a house after starting showings at an open house. He told me that most of the offers were so similar that the seller got to the point where they said stop opening them!!! How do you truly evaluate more than a few offers? Doing so requires more than just looking at paperwork! I like to talk to lenders and buyer’s agents so that I can professionally inform my seller clients.

Buyer agents got creative as well. I received purchase offers with mid-day expirations. Typically a buyer will give a seller 2 or 3 days to respond to their offer. After the allotted  time passed the offer was no longer valid so a seller had to decide whether to accept an offer as presented or “counter” it, knowing that they could not just assume that the buyer would stand by their original offer if they refused to go higher or modify any of the terms. However, in the “feeding frenzy”, many buyers did not want to be tied up too long waiting for a seller to respond so they would have their agent present an offer that would expire at some point during the same day. I would see a 1pm or a 5pm expiration and wonder how they would really know what time I returned the hard copies (back then many offers were hand-delivered. Today most are emailed so there is a time-stamp). A typical buyer’s primary concern was getting in first and negating competition. Many negotiations started at the asking price rather than working their way up to it. From this “escalation clause” was born.

It essentially consisted of three aspects:  an initial offer, a stipulation that the buyer would beat any other offer by a specified amount not to exceed a specified total AND a requirement that, in order to exercise the escalation provision, a listing agent had to show any offers that the seller was asking the buyer to beat. Most people, agents and consumers, do NOT know that, absent a “confidentiality agreement”, no offer is inherently confidential. I can tell you what I have “in hand” and ask if you can and will “beat it”.

Aside from how anyone feels about using or receiving an offer with an “escalation clause” and ignoring any legal issues about how the contract and addenda may be written, it has been my experience that, as a listing agent and buyer agent as well as one who has been involved in numerous conversations about many Real Estate practices, there are those who swear by these, there are those who deplore the very idea (they may be uncomfortable “shopping offers” or dislike this form of negotiating) and perhaps many who are not sure what to do with them. They seemed to disappear for awhile but they are back!

Having multiple offers with escalation clauses can get interesting. Having only ONE OFFER in hand and having it include an escalation clause is also interesting since the buyer and their agent have no idea if there is really competition! PA rules say that a buyer agent may ask if there are other offers but it is the seller who decides whether to allow their listing agent to answer the question. The choices are to answer honestly (why would anyone say they have no other offers? On the other hand, saying that you do may scare away buyers who do not wish to compete) OR to say that you are not authorized to answer the question. Lying is NOT an option!

Unless the offer as written is acceptable to the seller, many agents will suggest that their seller client simply “counter” the offer by asking the buyer for a new specific price or asking for their “highest and best”. While the seller may forfeit the amount suggested by the escalation clause (the number is meaningless when there is no other offer to disclose), the buyer is under no obligation to modify their initial offer. I have heard agents make ridiculous statements like “the seller has to show me the other offer(s)“. REALLY??? A buyer has no leverage to compel a seller to do any such thing. In fact, the ONLY thing a seller is REQUIRED to do is provide a complete property disclosure statement. Of course, however a seller or buyer responds to anything will determine whether there is an executed contract.

I like the “highest and best” approach especially when there are multiple offers. If you “counter” with a specific price or terms, the buyer may accept which is fine unless you have done that with more than one buyer! In any Real Estate negotiation both sides MUST recognize that there are some basic risks. The buyer’s include not knowing whether there is competition, not knowing what the seller expects/ needs to achieve financially (which includes what they will actually accept), not knowing what aspects of an offer may be important other than just the financial, not knowing if a seller will even respond to/ consider their offer, etc. The seller does not know how high a buyer may go (they may see financial information but that might be based on what a buyer wants to do rather than what they are capable of really doing), whether the buyer is also interested in other houses (in PA we generally suggest that buyers do NOT bid on multiple houses at the same time but that does happen elsewhere), whether the buyer will remain interested after making their initial offer, etc. There is a lot in motion just getting to the point of actually signing an agreement.  After that is done, the REAL work begins and there are multiple opportunities for both parties to re-evaluate their interest in moving forward.

How the rest of the process plays out is largely dependent on the groundwork established getting to an executed contract. I firmly believe that at the time the agreement is fully executed one side or the other is “happier”:  did the seller get more than they expected or did they accept less?; does the buyer feel they got a bargain or that they overpaid? Typically the next major step is the inspection contingency and this may be the only phase where a buyer and seller may get to address their feelings about the selling price. Let the fun begin!

HIRE WISELY!

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July 14, 2017

Buying a “dated” listing? What should you do?

Filed under: Uncategorized — awetzel @ 1:48 PM

You have a buyer-client interested in making an offer on a house that is dated. Hmmm. Does it need updating or does it need repair? Some buyers may think they are the same thing! I want to focus on houses that need updating. I will say that there are some parallels between both “conditions” but that houses needing repairs probably have a smaller potential audience and their condition may impact how a lender and/ or municipality views them. Hopefully, a buyer knows what they can handle!

Some houses seem to sell over and over again while others stay off the market for many years. I wonder why some seem to keep coming on the market. Perhaps there is something that needs to be looked at? On the other hand, houses that change hands frequently tend to be more updated as each seller wants to attract interest and, generally speaking, most sales involve a property inspection and a municipal inspection so there are repeated processes to check how a house is doing.

Conversely, houses that are sold less frequently have fewer opportunities for third-party evaluation and may not be updated with the latest equipment, features or decorating ideas. For example, in my local area you will find many houses with wall-to-wall carpet (even shag carpet!), aluminum siding, paneling and dropped ceilings! Salesman flooded the area in the 1970’s and sold a ton of these “ready fixes” that became “staples”. The presence of any (or ALL!) of these “dates” a house and can send some buyers running away. Frankly, unless you like what you see, these old-time “upgrades” may be unappealing, difficult to change and/ or even hide issues that should have been addressed but were covered up. Given the current low interest rates, unless a buyer specifically wants to decorate a home to their own tastes or buy a house to “flip”, they may be more inclined to spend more (it typically costs about $5 per month for every $1000 borrowed) to get a house that needs little improving or has nothing to do before moving in. How much does that extra bedroom or bathroom really cost? If you are planning for down the road, what is the potential impact on resale?

Ideally, houses should be priced for features and condition (the location cannot be changed so I am ignoring it here but it is obviously important). Buyers should evaluate houses in terms of the competition, its features/ condition and how it fits their needs/ wants. I firmly believe that a house is something a person/ family should “grow into” rather than “outgrowing it” as ‘closing costs” are very expensive! Aside from their perception about how a seller priced it, buyers need to consider how much to offer and whether to ask for specific repairs up front. It is always risky if not disingenuous to make an offer on a house already priced for its features and condition and then to ask for financial consideration arising from a property inspection that points out the obvious. Inspections should focus on what is not obvious during a showing as well as pointing out what a buyer and their agent did not know at the time. Of course this will depend on whether the market favors buyers or sellers and the level of urgency the seller has.

I trust my ability to represent the interests of a buyer-client when they have interest in a house that needs work. I need to know what they are thinking so that I can properly advise them. Then, I like to have an honest conversation with the listing agent before my client commits to making an offer and spending money on inspections only to find that their perceptions and expectations differ from the seller’s. Wasting time making an offer that will go nowhere may allow better options to sell to other buyers; spending money on inspections that reveal repairs a seller will not address costs money. Of course, every situation is not ideal and time and money may get wasted.

HIRE WISELY!

Selling a “dated” listing? What should you do?

Filed under: Uncategorized — awetzel @ 1:25 PM

You have been “hired” to sell a house that is dated. Hmmm. Does it need updating or does it need repair? Some buyers may think they are the same thing! I want to focus on houses that need updating. I will say that there are some parallels between both “conditions” but that houses needing repairs probably have a smaller potential audience and their condition may impact how a lender and/ or municipality views them.

Some houses seem to sell over and over again while others stay off the market for many years. I wonder why some seem to keep coming on the market. Perhaps there is something that needs to be looked at? On the other hand, houses that change hands frequently tend to be more updated as each seller wants to attract interest and, generally speaking, most sales involve a property inspection and a municipal inspection so there are repeated processes to check how a house is doing.

Conversely, houses that are sold less frequently have fewer opportunities for third-party evaluation and may not be updated with the latest equipment, features or decorating ideas. For example, in my local area you will find many houses with wall-to-wall carpet (even shag carpet!), aluminum siding, paneling and dropped ceilings! Salesman flooded the area in the 1970’s and sold a ton of these “ready fixes” that became “staples”. The presence of any (or ALL!) of these “dates” a house and can send some buyers running away. Frankly, unless you like what you see, these old-time “upgrades” may be unappealing, difficult to change and/ or even hide issues that should have been addressed but were covered up. Given the current low interest rates, unless a buyer specifically wants to decorate a home to their own tastes or buy a house to “flip”, they may be more inclined to spend more (it typically costs about $5 per month for every $1000 borrowed) to get a house that needs little improving or has nothing to do before moving in.

On the seller side, what should they do? Some listing agents WILL come in with a list of suggestions to make a house more saleable. I have heard of agents asking sellers to upgrade kitchens and baths or even to add a powder room to get a house sold. I do agree that a house may have something that really needs to be addressed just to make it able to be sold and that requires an honest conversation. However, many have “things” that I suggest leaving alone unless and until feedback or actual interest elevates them to priority status worthy of discussion. The fact is that many sellers do what they think will help their house quicker and for more money without actually knowing what their eventual buyer really wants. Many over-estimate the “return” on their investment. If the goal is to make a profit on the “project”, you need to do it properly and look at realistic numbers to see if doing something is really worth the time and effort. Look at how “new construction” works:  they offer a base model and then discuss upgrades.

Ideally, houses should be priced for features and condition (the location cannot be changed so I am ignoring it here but it is obviously important). Buyers should evaluate houses in terms of the competition, its features/ condition and how it fits their needs/ wants. I firmly believe that a house is something a person/ family should “grow into” rather than “outgrowing it” as ‘closing costs” are very expensive! Aside from their perception about how a seller priced it, they need to consider how much to offer and whether to ask for specific repairs up front. It is always risky if not disingenuous to make an offer on a house already priced for its features and condition and then to ask for financial consideration arising from a property inspection that points out the obvious. Inspections should focus on what is not obvious during a showing as well as pointing out what a buyer and their agent did not know at the time.

The bottom line is that there is risk either way. I would rather trust my ability to talk with an agent who has an interested buyer to close a sale than have a seller spend money that may hurt a sale and cost them money they will not recover, possibly affecting their plans after selling.

HIRE WISELY!

 

July 10, 2017

Are you actively looking for a house??? Part 2 of 2 (the search!)

Filed under: Uncategorized — awetzel @ 4:59 PM

Based my previous post, let’s assume that you have hired an agent, been pre-qualified for a loan (cash buyers are always welcome!) and have determined at least basically what you are looking for in a home, where do you go from here? The goal is to access fresh information as quickly and easily as possible so that you can decide whether to make a purchase offer or not. Unless your taste in housing is rare or unique, you must understand that you will have competition. If the information you get is stale, you may miss out. If finding property information involves a lot of effort, you may move slowly. If your offer is weak or poorly constructed, it may not be competitive. An agent can help you with all of these but, unfortunately, buying Real Estate is like “playing poker” in that neither side truly knows what the other is thinking so having an experienced negotiator is critical to minimizing the uncertainty and cutting through any drama.

Another point to consider is that you may only get one shot at purchasing the house you really like. You may lose to a more aggressive offer. Again, a good agent can help you here but some sellers do not like the “back and forth” that accompanies many offers. Even sadder, many agents are ill-equipped to manage such a negotiation and most transactions require some negotiating whether it be with the purchase offer or with responding to inspections and anything else that may come up.

The “search” consists of doing anything and everything you can do to present yourself with as many realistic options to consider as possible. Will you learn about every available or upcoming listing? Probably not but you need to have as many choices as you can handle so that you will not wonder what you missed or what the future may bring. The single most productive tool for readily identifying property listings is the MLS:  well over 90% of houses are listed with agents and most of them (not all!) will post their listings in the MLS even if they do not post them on the Internet. An agent should set up an automatic search that will regularly email you listings matching your criteria. This can be readily adjusted if and when you change your search parameters. My MLS offers several options for emailing property information to my clients. The most popular involve my sending listing updates to my clients once a day (am or pm) or twice a day (am and pm), depending on what they want.

The search results, meaning what I email, are only as good as (a) what buyers tell me to search and, equally importantly, (b) how accurate the listing information is within the MLS. On the listing side of the business I prospect expired and withdrawn listings (meaning they did not sell) and find that most of them had at least one flaw that made them not appear in “search results” where they belonged so buyers and their agents may not have ever known they were available. For example, if a property listing has the wrong zip code (yes, I have seen this), is a row listed as a single (yep!), displays the wrong number of bedrooms and/ or bathrooms, has the wrong features or incomplete features, it will NOT come out in the proper search results which means it may sit on the market longer than necessary driving up the “days on the market”, get reduced for the wrong reason (this is very costly to sellers!) and have the contract expire without a sale or have the seller pull the listing from the market wondering why it did not sell. Some of these properties will still be “found” and sold but, since they were not made available to every possible buyer prospect, the seller may have gotten in a lower sales price than expected (this can be nice for the lucky buyer). Why do I mention this? An experienced agent understands the potential and limitations of the MLS and is better equipped to unearth more potential property listings than a less experienced agent.

Many buyers will “shop” online even after hiring an agent. Some do this to check what their agent is sending them, some to explore beyond their established search criteria, some just to stay active. That is all fine but it is important that they keep their agent aware of any changes they make as far as what they are searching for. Add an area to your list? Tell your agent. Adjust your price or features you think important? Tell your agent. If a buyer and their agent are searching using different criteria, no matter how close they may seem, they will get different results. If the Internet search is the more current model, unless the buyer sets up a “profile” to send themselves updates, they will miss whatever happens when they are NOT actively searching online. The search should be, pardon the humor, SET IT AND FORGET IT! It is so simple and yet so important to our success!

There are other ways to find houses to consider which may never hit the MLS or Internet and they involve some work. Do you tell people you know that you are looking? They may hear about something before it gets listed or they may know about a property that will never get listed. There are a small number of property transfers that happen without an agent such as those within families or between friends as well as private sales where the principals want to avoid paying a fee (that poses a different set of potential concerns). Of course an agent can get involved as long as someone knows that someone is looking to sell a property. Some of these can be found online (be wary of some sites that are used by scammers!), by print ads, lawn signage and any other way that someone might communicate to others without using the MLS. Keep in mind that these listings represent a small portion of what is sold each year.

Generally speaking, the MLS is what I have had the most success with. Here is how it works:

  • I ask my buyer-clients what they are looking for. I try to get them to separate the “MUST” haves (needs) from the “LIKE TO” haves (wants). The more you add, the fewer the choices and the higher the price. This list will likely evolve depending on how many choices they have and what happens as the search moves forward. If my initial search generates few options to consider, chances are a buyer may be expecting too much for where they want to live and what they want to spend. On the other hand, if there are many options, they can add more “goodies” to the list. This is all very general but, as an example, what would do if you went to buy ice cream and were only offered 2 flavors?;
  • I send my buyer-clients an initial list of search results after which the automated process takes over. The buyer’s job at that point is to check their email regularly for updates to see if there is anything they like;
  • when they see something they like, I prefer buyers to visit a neighborhood before we schedule a showing. Buyers need to understand that they are “buying a neighborhood” and a lifestyle, not just a house. If they do not like what is next door, across the street, behind a house or near it, they probably will not want to buy it. You can fix up a house but you are stuck with the neighborhood/ location. Some buyers may want to jump right into showings (that is the fun part, isn’t it?) and many of them will be discouraged by “obvious” external factors that make them not want to see inside or consider a specific house meaning that a showing could be a waste of time. However, while many “judge the book by the cover”, many houses that appear “rough” on the outside are actually quite nice inside which can be seen if an agent uses multiple pictures. Of course, in fast moving markets or markets with low inventory, driving by may not work as properties will move more quickly than normal. In fact, some buyers will make offers “sight unseen“. That can be risky but there are ways to do that if that is what you want to do;
  • as quickly as possible buyers should determine whether they want to see inside a house. Until then, the search cannot move forward.

Keep in mind that when buyers get notified of an update, other buyers are also getting the same update. As an example, I have had buyers get upset because they found that houses they wanted to see had competition or were sold before we could get in. This will happen but I have seen situations that were very avoidable. In one case, I found that a buyer was not checking her email regularly, that she was waiting to do a drive-by until there were a couple of houses in an area (trust me, I understand that this can be very inconvenient for some) and then she was slow to ask to see inside. While she was unconsciously slowing the process, others were seizing the opportunity.

Let me focus on the initial list at this point. Assume I have provided 15 houses. While I show many buyers a house or two at a time, I have shown as many as 17 on one tour (ughhhhh!). I have found that the optimum number to see is 5 or 6, depending on the situation of course. When the number to be shown exceeds 5 or 6 many buyers tend to lose focus and start forgetting what they saw.

We could take the 15 and set up 2 or 3 tours to get through the list but I have found that unproductive. For example, suppose we schedule 5 on day 1 and you really like a specific house. What do we do? In my experience most buyers will be reluctant to make an offer since there are 10 houses on the list that they have not seen. Sure they have seen them online but perhaps there are few or no pictures and/ or the write up is poor:  they will not really know whether the one they like today is the best of the 15. If I write an offer that gets accepted, will the buyer remain committed throughout the process or wonder what they might have missed? This gets tricky when home inspections reveal blemishes that most houses have.

This is where driving by maximizes the effort. If they commit to driving by the 15, most likely they will eliminate some from the list which may get us closer to their finding their dream house. Perhaps they will like all 15 or not like any of them. The next step is to prioritize what they liked. I ask them to focus more on the neighborhood/ location than what is in the MLS especially if the MLS may be lacking enough pictures/ text to really tell you what the house has to offer.

Suppose you like 10 houses and can rank them 1 to 10. I want to show you the top 5 or 6 so that, if one is really appealing, you will not fear missing something you think you might like. There will be times when you need to see a house a second time such as when we need another tour to get through the remainder of the “preferred” list or to see newer listings that are now available. Perhaps you want someone to come with us to help you decide (such as a family member or friend) or you would like a contractor to give you an idea about the cost of doing something. The goal is to get you to a point where you are comfortable making a decision before someone else buys a house you wanted.

Let me add two other possible benefits to driving by houses before seeing inside. If you are considering unfamiliar areas, driving through them will help you evaluate whether to keep them on your list or remove them and even take you through areas you are not presently considering but find that like. Most buyers stay within 15 miles of where they grew up. While that seems nice and keeps families and friends close, perhaps they do so because they did not take the time to explore other areas.

Also, you may also identify houses that are not on your list. One of my favorite stories involved a couple who did not have a computer (this was years ago). I had an agreement to sell their house so when I came over to have them sign it, I brought a one-line address list containing 40 properties that matched what they were looking for. They were pre-qualified and very reasonable with their list of “needs” and “wants”. They knew the area well enough that they looked over the list and were able to eliminate a number of houses right away. They committed to driving by the rest over the weekend and said they would call me early the next week with a list of houses they wanted to see inside.

They were going to provide me with the wife’s sister’s email address so they could use her computer to see what I was sending them. As it turned out, they did not need to do that. They called me on Monday to say that they had reduced the list of 40 down to 5 and that they saw a “For Sale” sign on a house that was not on the list. They gave me the agent’s name and phone number so I could call to see what the asking price was and what the house offered. The house was not yet in the MLS but it matched their criteria so I scheduled showings for that one and the others that interested them. They ended up buying the one that was not on the list and have lived there ever since. A “For Sale” sign is just as likely to be on a sold property, one out of a buyer’s price range or one that does meet their needs but you never know until you ask and, unless you make the effort, you may not wander into this type of situation.

I tell sellers that the selling process is NOT like living in a house:  there will be a degree of inconvenience and frustration as you expose your “castle” to people who may or may not be qualified to buy it or who may not be serious about buying a house. They may even have nasty things to say. I wish it were easier to “get to SOLD”!

I tell buyers that the buying process is different from their normal routine. Doing it right takes time, may cause frustration when they either cannot meet a seller’s demands or defeat their competition and that there are a number of steps that have to be completed to take possession. Their effort will largely determine how long it takes to achieve the goal.

To conclude, buyers have an endless number of avenues they can travel. Are they serious buyers or preoccupied with the “shopping experience”? If they are serious, they will succeed sooner rather than later but even the best prepared buyer cannot control everything. However, marching into the process on your own, is probably NOT the best way to tilt the odds in your favor!

HIRE WISELY!

 

 

Are you actively looking for a house??? Part 1 of 2 (the initial process)

Filed under: Uncategorized — awetzel @ 4:35 PM

I have been a licensed agent since 1996 and, while I have not seen IT ALL, I have seen and heard many different opinions on many aspects of Real Estate. The purpose of this post is to help buyers. Let me start by telling you what it was like in 1996.

From what I was told, 1996 was part of a new era in Real Estate sales. Buyer Agency was in its infancy (prior to that, ALL agents worked for the seller even if they showed houses and wrote purchase offers for buyers. Imagine that!) as was the multiple listing service which readily enabled different companies/ offices/ agents to share listing information (we used dial-up modems on computers enabled by loading a program using a 3.5″ disc. Again, imagine that!. Today the MLS is a website accessed using high speed).

The “staples” of the listing side of the business were the “For Sale” sign, newspaper ads and “open houses”, all geared towards “getting BOTH sides” of the sale or at least generating prospects/ leads for other listings. The yard sign was planted on a property by agents like an explorer claiming territory, it was OUR advertisement. There are rules covering what MUST be displayed and we can add our name and contact information as well as whatever we want to tell the public. Of course, the goal was to make OUR PHONE RING so signage and ads typically did little more than generate interest without answering all of the questions.

Buyers had choices:  they could affiliate with an agent in the hope that the agent knew what they were doing and that they would be able to keep the buyer informed about the newest listings (as well as reduced and back-on-the-market listings), provide information beyond what was available on yard signs and ads and perhaps provide information about properties not yet available for sale. Agents were clearly in charge of what I call the “Gatekeeper model” as buyers were dependent on agents. Generally speaking, if you could not reach an agent or if an office was closed, there was little chance of getting the information you wanted.

Fast forward to today. The Internet has changed the landscape as it did with so many industries although Real Estate is different:  buying a property is NOT a retail transaction so there is no “shopping cart” and the process of acquiring a house is more involved than buying on amazon, ebay or any other retail site. There is also no return policy although any sale has points for both principals to reconsider their decision.

The effect of the Internet is called “disintermediation“, meaning that the Internet has inserted itself between the consumer and agents. There are obvious benefits to both groups. Consumers can access information 24/7 rather than having to hire or call an agent or company and they can do a lot of the legwork as they move towards fully engaging in the process of seeing, narrowing down and then selecting a specific property to pursue. Agents can readily email information which generally has multiple pictures/ video and perhaps a full description which reduces the need to actually show an endless number of houses which ultimately may not appeal to a buyer. The Internet in general also allows us to analyze/ compare properties and makes available a great deal of information to buyers regarding neighborhoods, schools and a variety of other data they deem important.

With this technology there are also detriments. For the buyer, there is a seemingly endless array of questionable information, some of which is wrong and much of which is confusing, often providing comfort while really not furthering the actual search. Frankly, the longer it takes to get properly “pre-qualified” so that you know what price range to consider and the longer it takes to hire a professional who knows the process, all you are doing, for better or worse, is shopping. Should you decide to move forward without securing financing and/ or without having the assistance of a qualified professional, you will most likely be unable to acquire a property that might be the right choice for you.

For agents, the Internet is competition in that it may delay or prevent a buyer from contacting you, it is accessible 24/7 (frankly, Real Estate agents are not viewed favorably as a group when it comes to responsiveness!), it provides answers to practically any question and exposes the consumer to an endless array of choices both in terms of properties to consider and other agents vying for their business.

How does a buyer or agent cut through the noise?  Let me focus on the buyer here. It starts with their commitment to the process and by commitment I mean their sense of urgency. If they are just dreaming or shopping, so be it. It will be up to agents to determine whether they have just met a serious buyer or a time-waster. If a buyer is serious, there are a number of things they may well want to consider.

  • get pre-qualified. What can you afford and what are you willing to spend? Lenders may offer less than what is needed to get what you want. On the other hand, they may offer you more that you are comfortable spending. Balancing these takes time and it is very personal. An agent can help:  would you rather “grow into” a house or “grow out of” one and need to move sooner than you planned? Closing costs are expensive and prices fluctuate:  what is a house going to be worth in the short term? Long term? Who knows but this is a consideration;
  • hire an agent. Whether this is first or second it not important but these two should be the first two things you do. Books and many articles have been written about how to select an agent. Most consumers either know a number of licensed agents or know a number of people who know a number of agents. If either of these it true, you may know enough to know whether you really want to work with someone. Some people like working with people they know; some either do not feel that their friend or friend-of-a-friend is suited for them. How do you feel about sharing confidential information? Do you feel they are competent? Do you trust them? What happens if things do not work out? However you evaluate this scenario, understand that while it is awkward to have someone you know know that you selected someone else, it is also awkward to “fire” someone you know. However you evaluate your choices, know that when you search online you will be bombarded with agent choices. The third-party sites that offer you easy access to property listings and the related information they think you will find helpful are financially supported by agents paying for space so that you can see their information. Many agents will tell you that the large fees they pay for this type of self-promotion are well worth the exposure and added business they acquire. Many will tell you it was/ is a waste of money. As with anything else, it is just advertising and a discerning buyer needs to sift through the endless stream of information to get what they want;
  • unless you plan on touring every house on the planet, a serious buyer, especially those working within a time frame (are you relocating, do you have a house you are selling “under contract”, is your lease ending, etc.) has to know what they are looking for. While this will most likely evolve, especially if you are looking for your first house, you need to decide where you want to live, what you want in a house (detached/ single, semi-detached/ twin, attached/ row or townhouse; # of bedrooms; #of bathrooms; other features) and what condition you can live with (are you willing and financially able to update or modify or do you need something that is “ready to move into”). A Real Estate professional can assist you with each of these and, trust me, they are harder than they look and endless “shopping” online is NOT the answer;
  • what is the gameplan? I will leave this for my next post as it is literally where “the rubber hits the road”. I am sure you have heard the nugget that people who fail to plan, plan to fail. Sad but true. Buying a house is often a very competitive process and, unless you set yourself up for success, you may find yourself making purchase offer after purchase offer until you finally acquire a house that was not at the top of YOUR LIST!

HIRE WISELY!

Sellers BEWARE the “Presentation of Offers”

Filed under: Uncategorized — awetzel @ 3:58 PM

Many properties offered in the multiple listing service (MLS) have a comment in the Agent section stating that any agent with an interested buyer should review the “Presentation of Offers” instructions uploaded in the document section only able to be accessed by an MLS member. The title seems innocuous enough but many perceive it quite differently. In fact, many question the intent of such a document and whether a seller has actually agreed to its use while understanding the potential issues many of these may cause.

I do not mean this as a blanket statement about all such documents but I do wonder what makes an agent provide the instructions I see and I wonder how the form is “sold” to the seller-client given that so many buyers and their agents genuinely seem bothered by the apparent intent. On the surface the instructions seem somewhat restrictive rather than facilitating the selling process. Let me add that I have looked at a number of these forms and tend to see similar wording although I am sure that there are many such documents that I have not seen so I cannot tell you what they say. Their use does seem to be increasing.

Most of these forms provide valuable information such as whom to contact with questions, their contact information, applicable license numbers and what a listing agent (and presumably their seller-client) is REQUIRING an offer to include. I wonder what happens with an offer that does not include all of the required documentation:  is it still presented to the seller or is the process paused pending receipt of the documents? Hmmm.

Buyer agents MUST assume that sellers are in agreement with the content of these forms even though there may be situations where the “process” does not seem to be in a seller’s best interest, such as the delaying/ withholding of a written offer. Some agents suggest that a listing agent should have to prove that a seller agreed to the provided requirements but there is no form for that nor is the specific nature of what an agent and their client agreed to anyone else’s business. Let me move on to what generally is seen as the more problematic “requirements”.

Most of the “Presentation of Offers” documents I have seen include the same basic statements. These include statements that offers received after a certain time of day will not be presented to the seller until the next day (some may state that offers received late Friday or over the weekend will not be presented until Monday), that any “due date” associated with satisfying a contingency that falls on a weekend or holiday  will automatically be extended to the next business day, that the seller is requiring a certain minimum number of days to respond to an offer and that settlements will only be scheduled Tuesday through Thursday. The specific language must be included in the Agreement of Sale to make it binding.

Many agents seem bothered by these “other” issues for two very specific reasons. First, the business of selling Real Estate is NOT a 9 to 5, Monday through Friday, 40-hour a week job although that would be nice. Buying and selling Real Estate are not so predictable. Obviously a seller has the right to enable a listing agent who wants to implement such actions but do they really understand how they are perceived by some buyers interested in buying what they are selling and by some agents representing these buyer-prospects? Most houses are not sold “in a vacuum”, meaning that there is competition. Do some requirements tend to drive buyers elsewhere?

The other difficulty is that what a listing agent suggests that their client wants MAY NOT meet the needs of a buyer. Perhaps they cannot wait! There is a reason that our standard forms (at least in PA) use a “fill-in-the-blank” format. Telling buyers how to fill in these blanks can be onerous and frustrating especially if it delays the “normal” negotiating process. I can only wonder if any seller has lost a potential sale as a result of allowing their listing agent to use such a document which at times seems self-serving. I see many expired and withdrawn listings using this and can only wonder if they had anything to do with why the property went unsold?

I have been practicing Real Estate since 1996 and have seen many changes over those years. Some endured (buyer agency has been a proven winner!) while others were “fads” (QR codes are relics!) that passed over time. It remains to be seen what happens with the use of “Presentation of Offers” forms but, at the very least, listing agents MUST thoroughly explain the intent, perceived benefits and potential ramifications to their clients. I have heard many complaints over the years about clients not being able to get in touch with their agents, agents not promptly returning calls (I guess that includes emails and texts!), clients wondering why they did not get offers or why their agent could not “close” those they had. While the agent-client relationship is a special one and one that certainly deserves confidentiality, we cannot forget that we are here to “promote and protect the interests” of our clients above all else. Unless we have their permission, preferably documented, that does not mean that we cannot do business on nights and weekends. Of course, this can be an all-consuming profession and we need to carve out time for ourselves but that should not conflict with doing the basic job.

Let’s see how this works out. Thus far I have yet to encounter a seller who believes they were ill-served by these agent-imposed requirements (the proliferation of these documents suggest that it is not a seller-driven mandate) but, should that happen, their use will undoubtedly receive tremendous scrutiny. I am hoping to make sure that the process works rather than having to address it later.

In the meantime, I can only hope that sellers make informed decisions and question whatever seems counter-intuitive as far as improving their chances to sell their properties. After all, until we get an offer, no one succeeds!

HIRE WISELY!

Does a buyer want to work with the listing agent?

Filed under: Uncategorized — awetzel @ 3:46 PM

The topic is essentially “dual agency“.  It can be the best or the worst of times depending on your expectations and the ability/ integrity of the agent. The key measure is who benefits from the relationship? I will skip the specific topic at this point but will elaborate on the title of this post.

There are three types of buyers:  some want to work with the listing agent, some do not, some do not think about it at all.  I respectfully suggest that those seeking to avoid “dual agency”, assuming it is even available in your state (it is in PA), or not thinking about it all, need to fully understand it FIRST.  Making an informed decision is always preferable to making an uninformed, typically emotional, one especially given the potential problems with poorly handled “dual agency”.

Those buyers inclined or persuaded to work with the listing agent need to fully understand the possible advantages and disadvantages.  From a “fiduciary” standpoint, both clients lose the opportunity to have the “shared” agent disclose that which is now considered confidential since they are representing both parties in the same transaction.  The offset is that YOUR own confidentiality is maintained.  The specific difference is that an agent cannot offer advice regarding how much to offer, how to “counter” an offer and how much to accept.  All of this must be “weighed” to see the overall impact of “dual agency”:  is it more of a benefit or more of a liability?

If you are inclined to work with the listing agent, you need to make that known at the outset of any inquiry.  If you call a phone number on a “For Sale” sign, ask for the listing agent.  Same goes for Internet or print ads.  Do NOT assume that the listing agent will be the one answering the phone but do understand that if you spend time talking to whomever answers the phone and then ask for the listing agent, you may have created an unpleasant situation.  If you find a property that interests you online, you have to understand that so-called third-party sites use property listings to sell ad space to agents and that requires them to direct inquiries to agents who paid for exposure, regardless of whether they have a property listing that interests you or are even local.  The listing agent’s contact information should be obvious even if it is not the best presented.  Read before you click!

Let me add that some agents will NOT accept or practice “dual agency” at all while some, including me, will avoid it in specific situations where we cannot treat two clients equally.  Our Code of Ethics used to use the word “fairly” and we replaced that with “honestly“.  When it comes to “dual agency”, I like the word “equally” since the concept presumes that neither client is shown favoritism.

I left two major points about “dual agency” for last.

In my opinion, the BEST rationale for properly handled “dual agency” is that there is only ONE set of ears and one mouth going back and forth.  While perhaps unintentional, I feel that most of the issues plaguing Real Estate sales relate to communication.  Have you ever told someone something and heard that they told someone else what you told them only to find that what they said was not what you said?  Now imagine that scenario involving a Real Estate sale!  Of course, if all vital communication were put in writing things might be different.

On the other hand, the WORST rationale occurs when the buyer or seller thinks they can manipulate the agent to get “their way”.  Either party may try to gain the favor of the agent when negotiating.  Perhaps they think the agent will even reduce their fee to salvage a drowning sale.  When this type of drama starts to reveal itself, it usually spirals out of control quickly because there is a potential loss of trust and what I will call “fair dealing”.  A related example is when an agent is more focused on getting paid than protecting two people with opposite interests.  While a buyer and seller may both want to complete a deed transfer, they most likely differ on how to get that done.

The best advice I can give agents is to look past the potential of an increased fee and assess whether you can really treat both parties equally/honestly and facilitate a mutually-beneficial outcome?  If you cannot, such as what happens when there is a long-term relationship with the first client or there are family or friends involved, it is best to avoid the scenario.  There is no such thing as “trying it ” to see if it can work.  As that famous philosopher Mr. Yoda once said:  “do or do not; there is no try”.

HIRE WISELY!

June 26, 2017

A discount broker is expanding their footprint!

Filed under: Uncategorized — awetzel @ 5:06 PM

Let me start by saying that Real Estate is truly a “you get what you pay for” proposition. Is an advertised fee “too good to be true”? Perhaps (ALWAYS know exactly what you are paying for!) but there is more to representing a client than the fee itself and I respectfully suggest that sellers look at the “big picture” rather than hiring an agent based solely on their fee.

As an experienced agent and Realtor, I respect that there are different business models. “One size” does not fit all!  There are certainly quality brokerages offering a variety of different fee structures but consumers, many of whom have trouble objectively pricing their own properties, need to seriously evaluate what level of service they really NEED and are WILLING to pay for (also consider the TRUE cost of not selling if your plan does not work).

I know from experience that many alternative models promise low fees to attract prospects and this strategy works because humans are natural “shoppers” looking to save money. There is no doubt that buying and selling Real Estate costs money but the seller’s costs are already factored into most sales used for pricing a property. The REAL question is what does the consumer get for that cost or, possibly, risk losing in the process of trying to “save money”? Which services are they willing to forego to cut costs? Obviously if competing agents all have the same capabilities, their fee may be the deciding factor but too often the fee is given more consideration than warranted because too many consumers think we are all the same.

Unfortunately, I see quite a number of so-called limited service/ low fee listings expire unsold and I do not blame the brokerages or the agents. There is so much more to selling Real Estate than getting showings which is where many of these companies stop working with sellers (once a property is listed online, many agents have completed what they were paid for so the relationship ends), leaving sellers to take “buyer interest” to “closing” with little or no representation. The selling process really starts once there is “interest” in buying and that is where we earn our fee. The REAL question is what does the consumer get for the fee they agree to pay or, possibly, risk losing in the process of “saving money”?

I read an article about such a company in the Sunday paper and, respectfully, was left with a few questions. Perhaps they are misconceptions related to the person who wrote the article. First, they seem to use their low-fee approach as a “loss” leader, meaning that they expect a certain amount of residual business to accrue, specifically mentioning helping their low-fee-paying sellers to buy for which they will be paid a competitive fee. If that strategy works, they win; otherwise, they may be hard pressed to survive since their model includes providing a salary to their agents. Second and most striking to me, was what I consider to be a flaw in their thinking. They seem to want to correlate their fee with what they think is a reasonable cost to “promote” a listing as if that were the only true agent expense and a measure of our “value” to a transaction. Granted, if you compare the fee mentioned in the article with what most associate with Real Estate sales, there is a substantial difference. Also, there is no doubt that the advent of the Internet, as well as the Multiple Listing Service, has greatly reduced the cost we bear to advertise and promote our property listings (remember what agents had to do before the Internet and MLS? Unless a property was on a busy street, there was no guarantee that anyone would know it was available). That being said, there is so much more to a transaction that getting a property noticed or even scheduling a showing.

I would respectfully offer two opposing arguments. First, prior to the Internet, there were more sales where the listing agent represented the buyer. In fact, for years there was no “buyer agency” so having one agent in a transaction was quite normal. While you may or may not be a fan of what we now call “dual agency” (it may or not be legal in your area), it was a nice benefit which the Internet has helped to keep to a minimum by promoting agents (for hefty fees!) on their sites as much as the property listings they use to lure buyers to use the agents who pay fees to be promoted. Second, advertising and promotion are part of any sales scenario. However, how well the public receives that effort is largely dependent on how realistic a seller’s asking price is. We can spend little to promote a well-priced property and never spend enough to sell an over-priced one. I tell my seller-clients that if they price their properties really low, they will not need me; if they price them too high, I may not be able to help them. We can advise on price but not set the price and price is the #1 variable that determines our eventual success.

The larger issue is that our actual costs are so much more than “advertising and promotion” so I wonder why any reputable service would use that as a benchmark to evaluate our fee? Some call the commission a “marketing fee” which may add to any confusion. In reality, we are paid for two things: our time and our knowledge. Some sales are easier than others. When I receive my fee after settlement there are times when I know I was paid well for what I did; there are also times where the actual fee does not come close to covering my time and effort. Of course there are times when my listings do not sell and I incurred unpaid expenses which I fully accept as part of my profession.

If you really want to assess the “value” that we add to a real estate transaction, I respectfully suggest two possible points of reference. One is to compare agent-assisted sales with “private” or “unrepresented” sales. I know that is a challenge for many but there is data out there that suggests that the difference in results is well above our fee. For example, if I can get you an extra $10,000, how does that impact your perception of my value and how much of that amount am I worth? If advertising and promotion were the only relevant expenses, everyone should be able to successfully sell privately but that is far from true judging by all of the unsold/ expired/ withdrawn listings I see each and every day! Another measure is to actually look at how many hours an agent is engaged in a sale. Obviously if you hired an unresponsive, poorly- trained or unmotivated agent, your effort to sell will not succeed.

Good agents facilitate the process and nurture it until it succeeds or fails, neither of which my be totally dependent on us. Does a flat fee offer reasonable compensation? Perhaps; perhaps not. What if we charged hourly so that your cost would better relate to how much you needed us? Some may think that punitive. How about our collecting a retainer up front that would be refunded if there is a settlement? If you want to seriously look at what happens after someone expresses interest in selling a house, here are some questions to ponder.

After hiring an agent, how much time is involved in doing the legwork to prepare to market the house (this includes completing the paperwork, creating a property description, taking pictures and/ or videos, staging, etc)? How long does it take to upload a listing to the MLS and then look at how the major internet sites display the house? How much time is spent fielding inquiries (if a house is properly priced, this will be more involved than when a house is over-priced or condition-challenged)? Answering the seller’s questions (some know more than others; some consume a lot of time which is fine but time-consuming)? How much time is spent keeping the seller informed about the evolving market and discussing, what, if anything, needs to be done to meet any challenges? How about explaining and negotiating offers (this increases when seller expectations do not match the buyer’s as it may take multiple offers over time to sell a house)? Scheduling appointments, getting, relaying and discussing feedback? Scheduling inspections, discussing and negotiating the results? Scheduling municipal inspections and resolving any issues? Scheduling the lender’s appraisal and following up after that if there are issues? Reviewing the title report and helping the seller address any issues? Working through issues with the buyer’s financing? How much time is spent when the buyer’s agent is not as well-trained or as diligent as the sale requires? How about preparing the seller for closing which might include helping to arrange for movers and whatever else is needed? Are there any issues with the buyer’s final walk-through or on the day of settlement? There are others depending on the type of house, location and market conditions but these are the “most likely” to occur. Still want to focus on advertising and promotion? I tell sellers that they have more to do with getting us to the point of generating an offer than I do. I know how to market; do they know how to price their house? How realistic are they going to be? Frankly, if an agent is so willing to cut their fee, how hard should they be expected to negotiate the highest selling price?

Interestingly enough, it “appears” that most low-fee agencies understand that what they offer the buyer agent “must be competitive“. That being said, if they are paid up-front and not engaged beyond that, they have no vested interest in what happens. That can create added work for a buyer’s agent as they may be expected to work with the seller to ensure that the process moves along.

I think that too many consumers (and perhaps some agents) look at listing houses as being reducible to installing a sign, putting the information in the MLS and Internet and then waiting for a line to form. While blatantly false in the majority of sales, I find it a shame that anyone would think that little of the process and this profession. I encourage those who feel this way to do to try it themselves. That would certainly form a line of people apologizing and looking for our help. Remember what happened to the guy who ran a well-known web site for “unrepresented sellers”? He had to list with an agent to get the job done!

HIRE WISELY!

June 21, 2017

The psychology behind the initial offer

Filed under: Uncategorized — awetzel @ 3:55 PM

Many, many books and articles have been written and many discussions had over the age-old question:  how much should I offer on a proposed purchase of Real Estate? Years ago I actually had what seemed to be a young prospective buyer call me to discuss a property and, during the conversation, he asked if there were some customary percentage off the asking price that a buyer would typically offer. There have been times in my life where I could not control my laughter and this was one of them. I gathered myself and explained that if there were some such guidance, the process of selling Real Estate would be like reading from a script and that both parties simply had to rehearse their parts. I never got to meet or work with that person but have met many others looking for some rationale behind how to construct their initial offer, including the price, on a piece of Real Estate. Of course, “initial” implies that they would consider “improving” their offer and that a seller would give them that opportunity.

Let me start by  saying that sellers come in all types, ranging from “realistic” to completely “unrealistic”, each having their own thinking behind their expectations. Some care about their local market and what an appraiser and buyer might think, others not so much. Buyers can try to figure out what a seller is thinking but, unlike most “sales”, buyers and sellers rarely meet until the end and they generally do not interact directly, instead using surrogates called “agents”.  That alone can create issues unless a client and their surrogate/ agent are “on the same page.

I believe that an offer has to be somewhat coherent, meaning that there should be some relationship between the amount of the offer and the hoops you expect a seller to jump  through if you expect there to be any chance of acceptance let alone a reply.  Offer little and demand a lot and that is a recipe for frustration. Some sellers will not respond at all.

Agents can help their buyer-clients by supplying market data that may give some insight into what a property might achieve including the history of the property itself (has it been on the market before?, how long has it been on the market?, what is the pricing history?). Armed with these details, a buyer still has to guess what the seller is thinking, wonder if there is any competition and, perhaps most importantly, determine how much they really want to own the property in question. Urgency or a lack thereof may tell you a great deal.

Buyers tend to buy for one of three reasons, each with their own general guiding principles.  If they are going to “flip” a property, they must be able to size-up its potential future selling price and what it may cost, including acquisition and renovation, to get there. Over-estimate (meaning you expect more than what happens) and you may achieve less than expected or even lose money.  If it is going to be an investment property, the “sizing up” includes considering how easy it will be to find tenants (such as whether there competition for tenants, does the building and/ or neighborhood offer amenities that will attract interest?) and what they may be willing to pay. Many “gurus” suggest that an investment is good if the tenants pay the mortgage for you. Presumably, or should I say hopefully, the rents will rise over time while the mortgage stays flat and, equally importantly, vacancies will not be an issue (expect there to be some but keep in mind that you will never recover lost rent!) and repairs will be at a minimum (frequent tenant changes generally add to this expense).

The third reason is to buy a home to live in. While the process may differ depending on a number of factors (such as how long will you stay?, will the size of your family grow?, what is your employment status?), buying a home to live in is quite different from the other “reasons” and, assuming a buyer is financially “qualified” and personally invested/ engaged in a logical process to determine which house(s) should be the main focus, buyers need to understand that they may well have competition and that may mean they get ONE CHANCE to make a serious, perhaps even their “highest and best”, offer.

Most humans find negotiating awkward, difficult and confusing. Couple that with their wanting a “bargain”and you have a potential dilemma. Buyers will do what they will do. Even if the terms and conditions of an offer are consistent with the price they are offering, I encourage my clients to make an offer that will allow them to sleep soundly that night, knowing that they did what they were comfortable doing as they may not get a chance to “improve” their offer. Do they listen? Most do but they need to know that I am looking out for them, not trying to work for the seller or to increase my fee. It is not fun telling a buyer that they did not get the house. It is even harder when they did not think another offer could be better than theirs.

HIRE WISELY!

 

June 16, 2017

Time is of the essence in practice

Filed under: Uncategorized — awetzel @ 5:05 PM

The PAR Standard Agreement for the Sale of Real Estate uses the phrase “time is of the essence” in paragraph #5, line #50, to reinforce the fact that the dates and time frames agreed upon in writing by a seller and a buyer are the essence of the agreement and are binding unless and until both parties modify any specific terms.  Simply stated, this means that a party either has an “option” OR a requirement, depending on the task involved, to do something within a certain time, regardless of whether the “end point” or “due date” is expressed as a specific date (such as June 16, 2017) or as a number of days (such as “within 10 days ….).  Failure to meet the due date could result in that party losing the option (such as the right to inspect) OR being held in default (such as when failing to provide a deposit or to get the property to settlement).

The term “time is of the essence” also generally applies to most events involving decision-making.  In other words, many situations involving two (or, in theory, more) parties reaching an agreement about something rests on the factor of time.  Whenever we are faced with or pursue a decision, we need to understand that the scenario is not on-hold, frozen in time, waiting for us to satisfy ourselves before moving ahead.  Those of us who tend to be very analytical may too easily drift into what some refer to as “paralysis by analysis”:  we wait for yet another indication of whether we should move forward or not and, if so, how quickly and by how much.

Years ago I started using the phrase “not to decide is to decide”.  Frankly I am not sure whether I invented it or I picked it up along my travels but it is so true.  If we wait long enough to make a decision we may find that whatever it is that we were thinking about is no longer the case.  Fortunately, my life experience also tells me that some of the best decisions are the ones we do not make.  “If only I had done that” sounds like words of regret but can actually be very positive.

We have to understand that like is a complex amalgamation of many moving parts and that many wheels are turning at the same time.  When faced with a decision, we need to fully understand whether it is important or urgent, determine what we need to know before committing ourselves and, ultimately, what the cost might be for making the wrong decision or losing the opportunity to decide because others took action before we did.  No one will get it right 100% of the time and being decisive is not always best.  Perhaps all we can do is learn from our mistakes.  That is smart but not so easy to do.  Ask anyone who bailed out on Microsoft!

HIRE WISELY!

 

 

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