Should I buy now or wait?

Its almost Thanksgiving 2007.  The market in these parts has been in decline for the past two and a half years.  Allen Greenspan says there is more to go.  Ben Bernanke says the decline is over.  What do I do?

First remember that they are talking about the national real estate market, not the specific one where you will be making a purchase.  The chief economist for the National Association of realtors projects that our region will start to see increased sales and prices in early 2008.  They base their projections on the number of new jobs in our region (over 57,000 since 2005) and the number of household formations.  They also make note of the fact that the rental market in greater Boston has tightened and rental rates have increased all year long.

If you can pick the exact bottom of the real estate market, or the stock market, or the currency market, or the bond market, you must be a genius.  Cheryl Taylor gave me a great analogy that I think helps us understand and move toward a decision.  Picture a martini glass.  The price of homes has slid down one side of the glass.  I don’t know if it is exactly at the bottom, or is it almost there, or has it started to go up on the other side of the glass.  But I do know it is very close to the bottom and no one is smart enough to project it exactly.

The other very important element when purchasing a house is the cost of the mortgage.  Interest rates are very attractive.  Will they go lower?  I don’t know, but I don’t think there is much room for further decline in rates.  Historically, the late fall and winter months are generally the lowest rates for the year.  And, today rates are near the low point for the past 30 years, with only one exception.   As Dirty Harry said: “Do you feel lucky?”

With prices down, with interest rates low, with a large choice of homes to select from, now is the best time to buy.  Or, you could roll the dice and hope that all three of these elements will come together again in the months ahead.  Savvy investors are in the market today, making offers on properties.  Should you buy now?  I would.

Should I buy a foreclosure? Maybe.

I was asked by a young man the other day if he should buy a foreclosed property.  I told him first that there were two distinct times when he could do that.  First, at the foreclosure auction sale and second when the bank offers the property for sale from its portfolio of Real Estate Owned. 

 Unless you are a real estate investor and can afford to take big risks, I do not recommend buying at a foreclosure auction.  First of all because you can’t gain entry to the property to have it inspected prior to purchase and secondly because you probably won’t have time to do a thorough title search.  Your deposit ($5,000- $10,000) could disappear faster than you can say Going, Going, Gone.

The second time to buy a foreclosed property is after the bank has had its foreclosure auction, taken title and started to market the property, usually through a Realtor.  Then, if you think it is a “good deal”, maybe you should make an offer.  But first understand the bank’s rules before you leap into it.  You must have your financing in place before making an offer.  No contingencies.  Don’t expect the bank to fix things that you discover during your home inspection.  In fact, some banks say that your home inspection is for informational purposes only.  They expect to hold your feet to the fire even if you discover major problems.   Finally, you had better be flexible.  The bank may not even answer your offer for several weeks and when they do, they expect you to act quickly.

Before you go running off willy nilly, make sure you have an experienced Buyer’s Agent working for you.  Someone who has had experience making offers on Bank Owned Property.  Do not, I repeat, Do not contact the listing agent directly.  They work for the bank and have the bank’s best interest at heart.  You are not going to get a better deal, just put more money in the listing agent’s pocket.  And you will be totally on your own.

Mean while, you are focusing on Bank owned properties and perhaps overlooking the best deals in the market - resales.  Some owners are very realistic about the price of their home relative to the current market conditions and they are willing to accept contingent contracts, allow home inspections, and deal with deficiencies in the property that have been discovered.   And, I recommend that you engage a Buyer’s Broker to assist you in making your purchase.  Take the time to sit down with the agent and have them review the entire process before you start to look for a home.  If you ask, they will outline the entire transaction process and explain the timeing of all the events.  A one hour consult will eliminate a great deal of the anxiety that comes with buying a house.

Then you can evaluate all the properties in the market place and make an informed choice and decision on whether you want to purchase a foreclosure or not.

When is the best time to purchase a house?

You missed it!  We started telling everyone that the market was turning in January of 2007 and yet, many people wanted to wait for prices to slip lower.  We saw a downturn in sales volume, and prices did seem to slip a little lower as the months passed.  But, recent data compiled by the National Association of Realtors tells a much different story. 

 It seems that the mix of home buyers has shifted somewhat.  Overall, the sale of lower priced homes has outpaced the sale of higher priced homes.  When the statisticians first looked at the data, they said well, the average price is down, and the median price is down, so prices must be down.  But on closer inspection and looking at same house sales over time, the reality is that prices are creeping upward. 

 How can this happen?  Two major factors enter into this phenominon.  Memory and costs.  Housing prices have always had a memory caused by the fact that most of us don’t want to lose money when we sell real estate, backed up by our friendly bankers who certainly don’t want to accept less than the full principal of the mortgage - the money you borrowed to make your purchase.  The second factor is cost.  The cost of building a new home has not decreased.  The cost of materials has continued to increase as has the cost of the permiting process and the engineering required to create new subdivisions.  How about the cost of building roads with all of their infrastructure?  That has been increasing too.  More stringent regulations from Conservation commissions, Boards of Health, Planning boards all have increased the cost of building a road.  A good number today is $500 per linear foot of road.  In a rural suburban like most of Central Massachusetts, towns often require 150 to 200 feet (up to 300 feet in some communities) of frontage for each lot.  Do the math, it could cost $100,000 to build 200 feet of road.  Add the raw land value and builders are often looking at lot costs of $150,000.  And we haven’t even started to build the house, or septic system, or install a well or water line. 

 You might think that because there is less home building going on that the tradesmen are charging less.  Well, I guess you haven’t tried to hire a plumber or a roofer lately.  Plumbers seem to have the same fee schedule as orthodontist and roofers charge about the same as cardiologists.  No, the cost of labor hasn’t decrease one bit. 

Because the cost of new construction hasn’t declined (the only exception is a few builders who have been overextended and had too much inventory of already built homes - and those are just about gone at this time), those properties help set the standard for existing homes. 

We recently did some indepth analysis of communities around our offices we found that in contrast to the poorly reported price decreases, prices have been remarkably stable and even shown increases in some specific categories.  Our advice to home sellers remains to price their homes in comparison to the other similar homes in their market that are currently for sale.  And if you want to sell, make your home the best deal in the price category.

But wait, there’s more.  While some people have been sitting on the sidelines, waiting and hoping for prices to fall, the interest rates have been creeping up.  So, the cost of owning a house is now significantly higher than it was 3 months ago.  That was the best time to buy a house.

 What do you do now?  Buy!  You can always refinance if rates fall later on.  But don’t expect that by waiting you are going to see lower prices and better deals.  You missed the bottom of the market.  Don’t wait any longer, you are just going to miss your best opportinity.

There’s a difference in real estate brokerages

One of the big differences in real estate brokerages is often highlighted by the way the company shares the total commission with its agents.  We call it the split.  The trick over the past 15 years has been to offer the agents a high split, but then charge them for services at a level that keeps the office profitable.  Many agents have swallowed this hook, line, and sinker.  Once they got hooked on the line, they often sunk.

The traditional brokerage has had somewhat of a hard time explaining its story, because it is a long story with a lot of services that many agents take for granted and it is often more difficult to quantify, at least a lot harder to explain than split. 

I happen to have a high degree of respect for Realtors.  Those who are active in the business possess a number of great skills when dealing with people who are buying and selling their homes.  The consumers are under financial pressure and emotional pressure and the Realtors enter into their lives at a difficult time.  Good Realtors earn their money on every transaction they are involved in.  They bring experience, ask questions that the consumer might overlook, and know what to expect at every turn of the deal 

In spite of those outstanding skills, Realtors are often not good business people.  They are too easily convinced to join a Brokerage firm because of splits, or closeness to their home or because a friend works there.  In my experience, over 75% of all agents have never truly evaluated the offerings of competitive Brokerage firms.  And two of the things I prize most holds a lot of them back, loyalty and friendships.

So, just a couple of tips to those agents that are willing to look over the fence and see if the grass is greener on the other side. 

            #1.  Consider the company culture – would you fit in with the manager and the agents who are already there?  Do they share the same values that you do?  What does their Vision or Mission Statement look like.  How about giving back to the community and Teamwork?

            #2.  Evaluate the financial opportunity – Does the company have tools that will make it easier for you to do your business?  Could the company programs create more transactions for you? (One additional transaction would offset a 10% better split for most agents.  Two transactions could offset as much as 20% split differential).  Does the company have the market position to allow you to get a higher commission?  A lot of high agent split companies are really discount brokers in disguise.  Agents find that in order to compete in the marketplace, they have to discount their service.  A ½% commission differential could equate to a 15% split differential.  Bottom line, first look at a company’s commission rate, then look at the tools and business development resources, then look at split.  Don’t ignore split, but put it in its proper place.

            #3.  Does the company generate business for its agents.  Many traditional brokers have relocation departments and some have elead depts. that generate and distribute leads from their internet presence and relocation affiliates.  Many of the high split companies have no internet presence to offer to agents – you’re on your own.

            #4.  Training – I have seen more poor agents move to high split companies and they seem to take the attitude that they don’t need training.  Successful real estate agents are good salespeople.  They know their business and they have the gift of gab.  Guess what, people are not born with it, but it can be learned.  Make sure the company you are looking at has training in all of the elements of real estate including salesmanship.

            #5.  Support – The best real estate agents find that they need support, especially when they get busy.  What happens is they start dropping things through the cracks.  It doesn’t look like much, but the clients notice.  And then the reputation starts to suffer.  Companies can offer a high split only if they don’t have to provide support to the agents.  And some agents can either do it all on their own, or they can hire the support when they need it.  But in effect, that lowers the split doesn’t it.

So what does an agent do?  Talk to other agents.  Talk to other managers and recruiters.  Don’t be afraid to interview.  But evaluate the whole company and all of the offerings.  Good companies earn the respect of their agents.  So, talk to their agents.  But don’t be swayed by the split argument and if you believe that guy who says you are going to get 110% split, I have a really good deal on a bridge that I would like to sell you.

It’s Coming!

What’s coming?  The return of a stronger market to Central Massachusetts. 

Statistics are funny things.  People interpret them any way their political perspective makes them lean.  And pesimists can always find a half empty glass while optimists always find it half full.  The statistics of closed home sales for Central Massachusetts don’t look that good.  When we look at the numbers provided by the Massachusetts Association of Realtors for the first quarter of 2007, sales of single family homes are off 4%, prices are off 2.5%, Condos are down 17% and their prices are down 2.6%.  Those are the facts.  Now for some analysis by the resident optimist.

Our market changes traditionally move from east to west.  The changes take hold in Boston first and then move west.  When the market started to weaken in 2005, it started in Boston.  Most Boston metro brokers had their best year in 2004.  We had our best months in the summer of 2005, and didn’t dip below 2004 levels until the last two months of the year.  So, now we have to look at the changes taking place in the Boston Market to estimate what is going to take place in our Central Massachusetts marketplace.   Boston is making a comeback.  First quarter single family home sales up 13.8% while prices slid 2%.  Condos up 15.4% with prices showing a comeback, up 1.6%. 

The sales level and price level in Worcester County, Norfolk and Middlesex counties are nearing their low point.  I also have the ability to look at the Pending Sales data, not just closings.  From what I see there, the change hasn’t happened yet.  New contracts are still laging the 05 and 06 levels.  And while agents are saying that they are busier than they have been in 6 months, April contracts will fall well short of the last two years.  My guess is that May and June will not quite measure up to 06, but the third quarter will finally outperform the previous year, as will the 4th quarter.

If your goal as a buyer is to pick the market at the lowest possible time, my advice is to plan your purchase for May or June of 2007.  (Remember that it might take you a month or two to find the home you want.  Better act NOW!

Giving Back

Last week, our company held its annual meeting.  This is a bit unusual for a real estate brokerage company, but then our attitude toward our agents is more one of partners than as contractors.  While I did most of the presenting of facts and statistics, I was blown away by some of the things brought to the meeting by our branch managers and our Charitable Trust committee. 

 The ERA Key Charitable Trust is funded by agents contributing a portion of each of their commission checks.  At the end of the year, the company matches the donations by the agents.  Next month, the Agent/Trustees will decide who will receive the money.  They have a total of $46,000 to disburse to legitimate charities.  I am very proud of our team of agents who have been so generous and caring about others.

 But that was only the tip of the iceberg.  Several of our offices participated in the American Cancer Society Relay for Life.  Together they raised over $15,000.  The lion’s share of that came from the Milford office.  Two of those agents directed the entire Relay for the Milford area.  That event raised $232,000 to help fight Cancer.

Agents in our Spencer office collected Toys for Tots.  It is truly an office wide event with the donations from the community flooding every nook and crany.  Over $6,000 worth of toys were collected for area kids. 

The Worcester office made a major contribution to the Worcester Board of Realtor Coat Drive.  They collected coats, hats, scarves and mittens from friends, family, and clients to help those less fortunate than themselves. 

Our local representative from Muscular Distrophy was at the meeting too.  He spoke emotionally about the great good and the thankfulness of those who receive the benefits of our fund raising. During the past year, ERA Key Realty Services donated over $54,000 to MDA.  ERA has been a national sponsor for MDA for 30 years.

Those were the big ones, but the list of causes, charities and commitments went on and on.  Vice President Mike Seaver and his church sponsored fund raisers for Hurricane Katrina victims including sending teams of workers to the Gulf to help the rebuilding effort.  Local food pantries, historical societies, Catholic Charities, school groups, girl scouts, boy scouts, little league teams, cheerleaders, after prom parties, Lions clubs, and on and on.  Hard to believe. 

I am very proud of this group of Realtors and all of the good work that they do.  What is even more amazing, is that they are going to do it again this year.

There is a change in the air

It is difficult for consumers to understand the changes that are taking place in the real estate market in the nation or in our particular market segment, Central Massachusetts and Metro West (west of Boston).  News stories are complex and convoluted probably because the reporters don’t understand the dynamics of the industry.  Plus the need to create attention grabbing headlines puts the consumer at a real disadvantage.  It seems to be far easier to tell a negative story than a positive one.

 Our company specializes in residential resales.  We sell hundreds of new homes and represent plenty of builders, but that only amounts to about 15% of the entire market of homes being sold anywhere.  We concentrate our efforts on helping people buy and sell existing homes.  Last year we helped 1716 people buy or sell their home with a market value of more than a half of a Billion dollars.

The thing about the news media is their stories are old news and sensationalized to grab the attention of buyers and sellers.  The latest story is that December sales of existing homes dropped the most since 1989.  First of all, did you know that 2006 was the third best year on record for our company and for most of the real estate industry?  Sure doesn’t sound it from their headline.  Secondly, the closings of sales reported in January for the closings that took place in December, is for contracts signed in October and November. 

 Want to know what is really happening?  In December, we saw renewed Buyer activity unlike anything in the past 16 months.  New contracts were greater in December 2006 than December 2005.  That was our first monthly year over year increase in 16 months.  Our agents were very busy showing houses and writing contracts from December 15 right through Christmas and up to New Years Eve.  This is traditionally the slowest time of the year, yet the Buyers were out.

 January 2007 shows the shift continuing.  My agents are extremely busy.  One husband and wife team said they each had 3 couples they were showing houses to this weekend alone.  We expect our January new sales (Pendings) to exceed Jan 2006.  And, we think the trend will continue.  The traditional media probably won’t catch up until March.  Meanwhile we have the Perfect Storm in Real Estate right now.

The Perfect Storm for fishermen occured when a storm from the south combined with a storm from the west and a Nor’Easter.  It created a monster storm that swallowed up the Andrea Gale, along with George Cluny and his crew.  And then it was over.  In Real Estate, the perfect storm bring three elements together, a large selection of homes for sale, lower prices than we have seen in years, and low interest rates.  But it won’t last.  Something will change.  Either rates will go up or supply will dwindle, or prices will go up, or all three. 

 Its in the air.  Change.  Don’t wait until this opportunity passes you by.  Buy!