Discount Brokers…Worth the Money?:
Real estate has been changing since the profession began. Innovators both inside and outside the industry have revolutionized it. Publishers back in the 30’s began putting listings in catalogs. That led to the multiple listing service, or MLS. When computers entered the world, properties began being shared between real estate brokers and offices. And when the internet arrived in homes, so did the all the homes available for sale.
Today, people work hard to find ways to innovate in real estate. There are apps you can use to take a picture of a home for sale and it’ll show you all the photos, the price, and the details about it. With those same apps you can find an agent, contact your agent, and even research the price of the home. Or you can get a Zestimate from Zillow that’ll tell you what they think is the value of the house.
What has had trouble sticking are companies that offer discounted real estate services. The savings sound good. But are they all they’re cracked up to be?
I've been researching the discount brokers for a while and there are some distinct differences. Let me give you some insider information into the real estate business.
Depending upon the mix of buyers and sellers a real estate professional is working with, one agent/broker can handle 20-24 transactions on his or her own on an annual basis. (NOTE: The average licensed agent does 2 transactions per year.) Once the agent is doing more, they need help. The help generally comes in the form of another agent who takes on part of the workload, usually working with their buyers. The second agent will show properties to buyers and may even write offers and handle all the escrow details. Doing so frees up an agent to work just with sellers so they can handle more transactions overall.
An agent who has a buyer’s agent working for him or her is now part of a team. In that case, the consumer may not always be working with the person they thought they’d be. A problem? Sometimes. Especially when they didn’t realize that would be the case.
Discount brokers operate under this model. They have to – if they’re going to make the same amount of money that the full service brokers make. The division of labor means they can do more and pay the other team members less so they make what they used to make.
Let’s take one of the discount brokerages for example. Nearly half of their agents don’t complete any transactions. Is that strange? Not when you learn that they have agents who just show property. Paid $13-14 per hour, they show up to meet the client to show them a house. If the client likes it, the original agent will write an offer, sight unseen. That’s their primary job – writing offers.
What about on the listing side? Let’s take another discount brokerage for example. They charge about ½% less than a full service broker to list a property. However, they don’t put their listings on the MLS – they just put them on their website. They’ll represent a buyer who learns about a house via their website. But, they don’t otherwise compensate a buyer’s agent. That means the only buyers who will buy their home are ones who will also pay their own agent. These homes tend to sell for less because they’re not exposed to the whole real estate market.
Do these models work? Yes, but not as frequently. Here’s the story of an agent from one of the larger brokerages here in San Diego. He had two listings and one buyer at the end of last year. An agent from one of the discount brokerages wrote offers on his listings and also wrote an offer on the same property he wrote an offer on for his client. In ALL these cases, the discount brokerage’s agent didn’t get any of the properties for their client. What was her response? She called up the agent from the large broker and yelled at him, accusing him of sabotaging her. Amazing!! He didn’t cause her any harm – she didn’t take responsibility for failing to help her clients.
Ultimately, cutting corners can save money in one area, but it doesn’t always lead to the results you want. The old adage, “You get what you pay for!” is generally proven true.
Overcoming the Hassle of MOVING:
Moving. I don’t know anyone who has positive thoughts about packing up their stuff, getting it moved, and then unpacking it in a new location. For those who are moving because of the military or a civilian job, most times it means they pack up the stuff. But most people are on their own, moving from one home to another within the same community. It’s all on them…
Or you and me. At age 50, I still get asked to help people move, so even age doesn’t have an impact. Socioeconomic status doesn’t always either (we all know people who could afford to pay someone, they just choose not to.)
But this article is about you and me moving. It’s a hassle! And yet it may be something you’re grappling with right now as you consider moving into a new house. So, let’s talk about how to minimize the hassle involved with moving. Here are some best practices I've observed over nearly 7 years in the real estate business (I know…7 years!!!)
- Purge Now. Begin the great purge of 2017. Whether your stuff goes via a garage sale, a donation truck, or both, start pulling out the things you no longer need or want now. Do it before you start looking for a new place. BENEFIT: It will begin helping you wrap your head around how much you actually need to move.
- Pack Some Now. You know what will happen. Just before you put your house on the market, I’ll come over to your house before you sell to tell you what you need to get out of the house. If you don’t need it out now, then put it away now. You don’t need to put it all into storage. Just put it in your garage. Items to consider: books, toys, possibly some furniture items. BENEFIT: This task may be a part of the Purge Now process, so get it done at the same time.
- Talk to Me Now. Frequently, people will wait until they’re “ready” before they contact me. They don’t want to reach out too early. Sometimes, they’re concerned that it’s a secret or under wraps, and they don’t want anyone to know. Just ask Kristin…she’s always the last to know! It’s never too early. For example, I just met with a client that I've been talking with for more than a year! Moving isn’t typically something you decide overnight. So contact me early in the process and the process will go much more smoothly.
The part of the process that often concerns people more is how to make the move from one home to another when there are so many factors that can impact the sale of one home and the purchase of another. Just remember: I've made it work for so many clients. When we meet, we’ll talk about how I can make it work for you also.
If you begin the process NOW, the stress of the move will be greatly reduced. Call, text, or email me with any questions. I’m always glad to help.
There's Nothing to Buy!!!:
“This has to change, it just has to!” Those words have gone through my mind for the past two years as we’ve seen record home price increases and inventory of available homes dropping to its lowest levels. Interest rates are going up a little, but it seems to have no effect on the housing market. And I think I know why…at least for a while.
I've personally represented buyers and sellers on 20 real estate transactions in the past year. On all but two transactions there were multiple offers. On the last one I wrote, there were 14 total offers! I think there would have been more offers if the interest rates were lower and home prices hadn’t climbed. That tells you how many buyers are out there ready to buy.
If you’ve been starting to think about moving, then you know what I mean. However, I heard some intriguing news last week. There is an idea floating around between real estate leadership and state legislators that seems to have some real merit.
Right now, when you sell the home you’ve owned for a while, you’ll be leaving a relatively low tax rate when you go to a new house. Your annual taxes could easily double! An example is the first house Kristin and I bought that we still own as a rental.
Let’s assume for this example that we still live there and were ready to move up. The annual taxes are about $2,600, which means the assessed value is about $220,000. But we just had the house appraised and it came in at $525,000! Let’s say we want to buy a $650,000 home. Our property taxes would go up from $2,600 per year to $7,800 per year…3 times more!
BUT…what if we could take our tax basis with us? If we did what we just talked about, we would take a $220,000 tax basis on a $525,000 house and pay the tax difference on the difference in the sales prices. The result? Our tax base on the new house would be $220,000 (assessed value of our current home) + $125,000 ($650,000 new house minus $525,000 sale price of our house) for a total assessed value of $345,000. Instead of paying $7,800 in annual property taxes, we would pay about $4,100…just over half!
This gives us the ability to actually consider moving. It also frees up our home for another buyer. We pay more taxes on our new house than the seller before us, more taxes are collected on the home we sold than what we were paying, and the seller of the house we bought is paying more taxes in their new home. This domino effect means more tax revenue for our county as well.
So should you wait? You could, but I don’t suggest that. Here are a couple reasons why.
- We don’t know when this plan will get to Sacramento. In the meantime, home prices continue to go up, so the tax relief could just get spent in a higher payment.
- Who knows if this plan will get to our state legislature and, if it does, if it’ll look like this or not.
I’ll keep you all posted as we move forward. In the meantime, if you’re considering a move, please reach out so we can dive into the details. That way you’ll know if it’s even possible.
What will interest rates do?:
Just days after the election, mortgage interest rates rose by about ½%. While still low, the jump had an impact on affordability. For the same loan amount, loan payments rose approximately 6.25%.
It had no immediate negative impact on sales. If anything, people rushed to make a purchase, thinking that rates will go up even more. The demand for properties has never been higher. Inventory levels are at all-time lows. And it’s likely that we won’t see a rise for a while.
What will interest rates do? Though no one can be certain, let’s review what could impact them.
- The Federal Reserve continues to talk about raising the overnight rate. While the rate doesn’t always have a direct link to mortgage rates, it does indicate that the Federal Reserve anticipates an increase in inflation, and raising the overnight rate can slow the rate of inflation.
- The stock market has seen record activity across most sectors since the election. Investors are feeling more confidence in a Trump presidency, at least in the short term, and it has caused stock values to increase because more money is entering the market. This can be bad, though, for mortgage rates, because that means less money for the mortgage market, driving up rates.
- The minimum wage increased in California to $10.50 per hour for 2017. While it sounds good for minimum wage workers, it means that prices for basic goods will go up with the minimum wage. This puts pressure on employers to raise compensation for all employees, including those who make many times more than minimum wage. This will cause prices on goods and services to increase, causing inflation.
- Bringing manufacturing back to the U.S. means more jobs and more tax revenue. This revenue will offset the tax breaks that will be given to businesses, which will lead to more jobs in other professions. Demand for employees will impact pay as well, so another influence on inflation. This will have an impact in the short term and long term.
- Housing demand is still high and supply is low in most parts of California and in many places across the nation. High demand coupled with low supply will always push on prices to go higher. We continue to see multiple offer situations on well-priced properties. (Interestingly, though, I’m not seeing the same thing for overpriced properties.)
Given that many indicators say that interest rates should go up, what should you do? I suggest you don’t do anything! That is, don’t do anything different from your plans or needs. Don’t plan ahead for a changing market we aren’t certain will go up. Selling now, refinancing now, or buying now just to beat an increasing market may mean that you rush in before a drop (unanticipated change) as much as you could be rushing in before a rise (anticipated change.)
If you are making plans to change, please let me know. I’d like to help you make an informed decision. Contact me anytime.
WHY PROPERTIES DON’T SELL:
Have you ever wondered why a house isn’t selling? There are a lot of reasons people give, and most of them are wrong. In fact, there are only two reasons houses don’t sell, and only one of them is true in virtually every situation.
Before we get to the real reasons, here are the ones I get often that are wrong:
1. Location – people assume a house isn’t selling because of where it’s located. Homes too close to a busy street, near an airport, or right next to the freeway are often reasons given…that aren’t the real reason.
2. Condition – a house that needs painting, updating, or landscaping can be seen as detriments to selling. Not so…
3. Needs Updating – a house that’s in good condition but is dated inside and out can seemingly take longer to sell, but it’s not because it needs to be on “Fixer Upper”.
There are more, but these are most often given. They sound good. But…they’re wrong.
There are only two reasons why a house doesn’t sell. In a few cases, it’s marketing. Specifically, people don’t know it’s for sale. In today’s marketplace, it’s very uncommon that a house for sale isn’t seen by hundreds, even thousands, of people. The MLS shares information with so many websites, virtually every potential buyer knows when a property goes on the market.
In every other case, the reason a house doesn’t sell is because of PRICE.
If you live in the United States, then you have experience with our capital markets, supply and demand, and pricing. You’ve been to Costco and bought in bulk because it was cheaper, purchased more clothes than you intended because they were on sale, and even justified a luxury purchase like a nice watch or pair of shoes because you couldn’t pass up the price.
You’ve also seen some beautifully renovated homes come on the market that you never saw up for sale before they were updated. That’s because an investor swooped in and bought them for cheap and made lots of money. Why did they buy them? Not because they were in the wrong location or in bad condition…but because the price was right.
So, when you see a property on the market for a long time and it hasn’t sold, don’t judge anything else about it except the price. If it hasn’t sold, it’s because it’s overpriced. That’s all.