A Smarter Way to Price Your Home in 2022 .

Have you heard these terms? Zestimate, broker price opinion, mortgage appraisal, tax assessment, market value. Everyone who compares and contrasts your home’s financial value uses information from the same pool of facts. And, then they temper the facts with opinions. The result is likely a price opinion within 5% of each estimation. 

The method of comparison and contrast works well when we can pull from a pool of properties similar to the subject. When real estate inventory is down and stays down for consecutive years, we don’t have to throw up our hands and guess at a price. The information that matters most to home sellers is always available and easy to find. 

We all sell for the same reason: to use our equity for a new life experience. Typical examples are buying a bigger or smaller house, relocating, divorce, and settling an estate. Everyone who contemplates selling has a good idea of the mortgages against the property and at least an inkling of the amount of money they want to have after paying off mortgages and selling expenses. When we know what we owe and have an idea of the money we want, we have most of what we need to set a price.   

Know what you want to do with your home equity. People with a plan have a good idea of what they want to have in hand after the sale. For this example, let’s assume the number is $100,000. If we know the mortgage payoff is $200,000, we know $300,000 will not be enough because we have selling expenses on top of the mortgage. Add ten percent as a roundup number. We have to sell this house for about $330,000 to net the $100,000. Is our home worth $330,000? It might be worth more for some people and less for others. Fortunately, for the first quarter of 2022, there are too few homes for sale to satisfy the demand.  

You’re only setting an asking price. It’s not our place to tell the market this is a fair price for a property. The market tells us. All we can do is use whatever facts are available to guide our thinking. Reasonable judgment is possible when we factor in the relevant facts, and there are always facts to consider. 

Is my asking price $330,000 or $350,000? In this market, pricing to appeal to the broadest market will give us a chance to see buyers compete with buyers. When a person fears losing the house to another buyer, their motivation to improve their offer is the greatest. Without competition, the market is balanced, and that’s not the situation you want if getting the safest terms and netting the most equity is your goal. 

Suggestion. Know the amount you owe. Know an amount you’d like to net after paying mortgages and selling expenses. You now have your lowest price. Consider the facts you can find. Are there any recent sales? How fast is the market? In what way is the market trending?

By tempering your expectations with facts, you will have an idea of a possible selling price and a probable selling price. A possible price is the one that will leave you with more equity for your next move. Probable is the number you intend to beat. 

People who set their asking price closer to the probable price than the possible price are more likely to have the strength of the marketing working in their favor. The perception of value drives demand. Selling is a process of negotiating what each side wants. You know you want to walk away with more money instead of less, and the buyer wants to spend less. In a regular market, it’s more likely that a buyer will win the struggle. Eventually, we will see normal again. Today, set your price at probable and let the power of the market drive buyers to offer more money and security.

How necessary is an inspection contingency?

Most offers are not rejected on price. They’re rejected because the terms of the offer would leave the seller in an uncomfortable holding pattern for two weeks or longer. When owners can get all the money they want, they certainly don’t have to take on the risk and worry of waiting for a buyer to decide if they’re going to proceed or renegotiate. If you think you’re taking on a significant risk to buy without a contingency to inspect, take some time to decide if there is anything that amounts to a risk worth fearing.

Every house has some conditions that owners consider insignificant, and buyers will consider defects. A buyer rarely asks the seller for a concession in a balanced market after discovering conditions that might require a repair. When homeowners have one offer and nothing on deck, conceding to a two thousand dollar price adjustment or making a minor repair is a simple solution to get to closing without starting over. Most renegotiations over inspection issues involve minor concessions of a few thousand dollars or less.

When your auto insurance policy has a $2,500 deductible, is a $2,500 repair to your $350,000 house a risk at all? What if the cost of fixing a hidden defect is $5,000.00 or $10,000.00? Now we’re talking about significant cash. Or are we? Most people agree to pay $5,000 or even $10,000 more than their highest offer to win the accepted offer in times like these. We see it all of the time. In competition, given a counteroffer and a choice to pay a little more than they planned or hold the line and keep looking, homebuyers make the wise decision and pay the price.

Making an offer without including a condition to inspect the property may not be a risk beyond your comfort zone. If you’d pay $10,000 more than your best offer to own the house, maybe you can accept the responsibility to take on a $5,000 repair that may or may not be necessary. There are some homes where the high-cost repairs could be lingering. It’s a rare inspection that turns up anything more than deferred maintenance. The cost of including a contingency to inspect and renegotiate is a rejected offer. Before having an inspection contingency in your offer, decide if an inspection is likely to find anything that you couldn’t live with or you couldn’t cover the cost of the repair.

Inspection contingencies are oversold in part to protect the broker. I think home inspections find their way into offers, not because a buyer thinks it’s necessary, but because the buyer agent fears something and prefers to have the protection of a professional inspection. Don’t let an agent’s fears influence your decision to make your offer more attractive to the seller. Price, security, and convenience will get your offer accepted or rejected this year.

Inspecting and Testing Contingencies. Are They Worth the Cost?

Children were once immune from injury by monkey bars, kid-powered merry-go-rounds, and teeter-totters. They grew up to be risk-tolerant young adults. Surviving eight grades of recess on asphalt playgrounds prepared them to be teenagers fearless of Normandy and Pacific island beaches.

In 1976, a residential offer to purchase in San Diego was one page. Having faced instant death from ages three and on, a child of the forties was not going to grow up to fear reverse polarity, ungrounded outlets, and cracks in concrete. Prepurchase home inspections were uncommon until the late 1980s. Late Boomers learned to accept risk, the price of participation. That changed when the Gen X crowd came into the home buying market, but let’s not blame them for their risk aversion tendencies. We boomers saw the opportunity to profit from the rising real estate market without holding a license of any kind. Everyone could be a home inspector as long as you had a pen, pad of paper, and a ladder. A slight fear of a giant catastrophe made the $200 fee look like money well spent to ensure a ready supply of ready buyers for the inspector.

By 1992 home inspection contingencies in an offer became the norm. About that time, another scare was introduced to the process—radon gas. A simple radon test and mitigation system generated about $4,000 of income for radon testers and mitigators. ($300.00 was enough to cover all of the parts and labor, but demand exceeded the supply of contractors, and prices rocketed.) There is at least one radon mitigator per REALTOR today. For $650, you can have your house tested today, and a mitigation system, guaranteed to work, installed on Saturday.

Home inspection contingencies and radon testing contingencies take up at least an entire page of the thirteen-page Wisconsin Offer to Purchase. Five years ago, waiving the inspection was uncommon. Three years ago, radon testing contingencies were added to the standard purchase agreement, and the contingency took off. However, by 2020, home sellers had grown reluctant to accept offers with testing and inspecting contingencies. I believe more offers were rejected over testing and inspecting contingencies than were rejected because of price. REALTORS were about a year slow in catching on to the fact that testing and inspecting were luxuries the market was no longer permitting. Early adopters to the practice of writing offers owners would eagerly accept held a big advantage for a long time.

It appears there has been acceptance of the slimmed-down offer by REALTORS and homebuyers. Where we once thought it was reckless to make an offer without inspecting and testing contingencies, the vast majority of offers are written to appeal to the seller, more than to protect the buyer from something someone fears might happen, but rarely does.

The fast-paced seller’s market has returned us to pre-1990 thinking about risk. There are a hundred protections you could insert in an offer. But every contingency you include is one more reason for an owner to reject your offer and sell to someone else. Four offers came in on one property this weekend. None had a contingency to inspect, test, or obtain a financing commitment. Wrapping a client in bubble wrap will prevent them from experiencing any surprises or elation over getting their offer accepted.

Less is more. Give clients a choice to insulate themselves from anything you can think of that might go wrong. Everyone does not want the same protections because everyone has different tolerances for risk. Remember when you’re drafting an offer, this is the buyer client’s offer, not ours. Give them choices, and you give them chances.

Talk, text, email, or send a Notice? Let the client speak for themselves.

In the Candyland game (ages 3 and up), a roll of the dice that comes up three does not allow a player to move four spaces to avoid landing on the licorice square. The penalty for licorice slows the player’s progress. There are no exceptions for players who wished the dice had come up anything but three, regardless of their years of Candyland experience. The game board does not come with a referee. Players who agree to participate agree to self-regulate and defer to the rules to settle differences of opinion. 

An accepted offer to buy and sell real estate is the agreement between opposing parties that set the rules of engagement. Like a game’s rule book, the agreement defines terms, establishes boundaries, expectations of fair play, and consequences for deviations. Players often are assisted by real estate licensees. Prohibited by the license limits from being arbitrators for one side, the licensee is more of a guide. 

When everyone promises to abide by the rules, we expect the process from start to finish will be smooth. Conflicts in home sales happen when someone decides the limitations don’t apply to them. I know what I said. I said I would call a plumber to fix the shower and I did. Unfortunately, the plumber fixed a leak in the bathroom instead. Too bad. I’m not going to pay for another trip and another repair. Take it or leave it.

 Semantics is a go-to resource for bending rules (I said I’m immunized. I didn’t say I was vaccinated.) Another is illogic. Real estate brokers don’t always know what they have for a client until opportunities for doing the right thing arise. When a person reveals themselves as a scoundrel, choosing to help facilitate the offense is a dangerous decision. Licensees must be fair to all parties, regardless of their client’s decision. 

When a licensee calls to tell me their client twists to interpret an agreement to an illogical conclusion, I am speechless. Well, that’s not true. I know what I want to say, but when I’m at my best, I bite my tongue. Why a professional real estate licensee would make a call to try to persuade me to persuade my client to accept this irrational position is beyond my comprehension. Agents who think they must facilitate conversations as their client or client’s attorney demands don’t have to make a phone call, text, or email. They could use a proper form—a Notice from Seller to Buyer or an Amendment signed by the Seller. Drafting may take longer than texting, but drafting is far better for placing accountability where it belongs.

When I say agents talk too much, I don’t mean they can not communicate. I’m saying when you speak, and your client doesn’t, the only documentation of ill intentions comes from you. If a client wants to be a scoundrel, it’s unnecessary to tie our integrity to his sinking reputation.  

Essential Real Estate Service

There are hundreds of things a real estate firm might do, but not all of the activities are for the benefit of their clients or customers. And only a few activities are services that require a real estate license. The majority of tasks done in the process of a consumer’s interaction with a real estate firm are administrative chores. A smooth transaction and satisfactory experience results when all of the work is done timely and with skill. The end result is intended to be more than just good. Because good-enough is not good-enough, the admin work is important. It’s just not essential real estate work.

The duties of the real estate broker and licensed agents are spelled out in the Statutes. Admin work is selective, the duties prescribed by law are not. The consumer participates in the chores. Hourly employees conduct many of the activities such as staging a home, pricing, photography, paper processing, scheduling appointments. Handling admin chores poorly is not acceptable, but they may be hardly of any consequence to whether or not the sale closes.

Handling the essential real estate services poorly carries tremendous consequences. If the job requires a license you can assume there are skills required, and rules of engagement. Failing to exercise skill or play within the rules can be catastrophic to the transaction’s outcome. And if not catastrophic, expensive in loss of time and money is almost certain.

We created Essential Real Estate LLC to be the firm that strives to make better use of the contracts, and negotiating opportunities for home sellers and home buyers. The advantages a consumer can experience when their broker knows the contracts and contingencies are significant. Giving away leverage because you agreed to a condition that your agent didn’t comprehend happens every day, but not with us. We make it our business to help our clients get into a commitment with well qualified, and highly committed people. We work smart to identify the people committed to closing on the terms they agreed to and separate those who aren’t.

The essential real estate work is contract work. It’s negotiations. Confidentiality is a contract and license law responsibility. Our clients should expect a higher level of attention to the work that requires a license. They should also expect to see a more satisfactory profit after the closing.

Inman.com Doesn’t See A Real Estate Bubble…again.

Is history about to repeat?

Inman.com didn’t get it right in ’05: Real Estate Bubbles Bubble May Deflate 1/28/05.
Better luck this time: A Real Estate Bubble Mythical at Best May 2021. 

Inman.com is the go-to source whatever it takes to move real estate. 

There was no bubble in the eyes of Inman in 2005. But even if there were, fear-not, responsible behavior would deflate the excess air—nothing to see here. Keep on buying. Who saw the tragedy coming?

Sixteen years later, we know the bubble was real. It didn’t deflate. It burst. Was it an economic crisis or a humanitarian crisis? It depends; did you lose your job, your home, your family, your dignity? Or, did you experience a temporary inconvenience before being bailed out by the federal government?

There is no doubt that history does indeed repeat itself. Wouldn’t you think there would be a few generations between one disaster and its second coming? Having been around long enough to see how easy it is to forget painful lessons, Inman.com publishing an article saying a housing bubble in 2021 is mythical at best is no surprise.  We humans have short attention spans and shorter memories, or we are the most optimistic creatures on earth.

How different is this? For history to repeat itself, we don’t need the same players. (Afghanistan plays the role of Vietnam in the 1950s and ’60s in the 21st century.) Subprime lending, low interest rates, and too few homes created a surplus of buyers in the first decade of this century. Low rates and a shortage of homes for sale, and high land prices have accelerated the price a person has to pay to own a home again. The players may be different, but is there evidence to expect the outcome will be?  

I don’t know if we are growing a bubble or not. Is it safe to say there are sound financial principles we might be ignoring and might be wise to consider before we rush into the mystic?

Listing Agents: Please Learn The Purchase Agreement.

Real estate licensees do not understand the terms of purchase agreements, and customers are hurt. There are 50% fewer homes for sale. The competition is brutal. People are overpaying by more than 10% and sacrificing all protections. The standard offer to purchase is not sufficient for this market. It is too bad for most consumers because it’s not going to be changed unless licensees learn how to eliminate continencies and soften conditions. I have little hope for most agents but see an excellent opportunity for those who make an effort to learn a skill.

You work in the contract business. If reading comprehension and logical thinking are not your things, give up your license and be an administrator. Your failure to excel at contract interpretation and explanation wipes out the advantage capable agents have for their clients and leaves home sellers represented by incapable agents locked into contracts with high-risk conditions. These things are easy to see…all you have to do is read and comprehend.

Agents who panic if every contract doesn’t look like the contract their trainer showed them are incompetent and dangerous to the consumer.

Seriously, if your learning ended with your new agent training or the person you’re learning from is a self-designated mentor, you’re in the way. Put down your lead generator, skip your next networking event, grab the real estate law books and learn something. How many people have to get hurt because you don’t think the contract work is fun.

Imagine getting 40 written offers on your home. Which one do you pick? The chances are you won’t like any of them well enough to accept. Unless the Buyer commits to close, why should the Seller commit themselves to the Buyer? Isn’t the Buyer committing to settle? Typically not.

With contingencies sprinkled throughout the contract, the Buyer has protection from an obligation to close. The standard Offer to purchase is a proposal to move from acceptance of the Offer to closing while the Buyer does due diligence to be satisfied with the property and the terms. An accepted Offer is more restrictive on the Seller than it is on the Buyer.

In a market favoring the Buyer, the purchase agreement works well. With few or no options, the Seller takes what they can get, and the Buyer enjoys all of the opportunities to change their mind or renegotiate. That’s not going to fly in a Seller’s market. As long as agents keep filling in standard forms with standard contingencies, it’s hard to tell one person from another. Every Buyer might have different motivations and commitments, but their Offer to Purchase says something different; it says, “I’m just as reluctant as the next guy. I might show up for closing, but I’m not sure yet.”

A Buyer Agent who knows how to take each section of the Offer and break it down to its fundamental intent gives their client more of what they need to know to make an Offer that better represents their commitment. The agent who thinks critically of the Offer and learns to guide clients to alternative terms is the agent who is likely to get an offer accepted for a buyer client when the competition is heavy.

The most acceptable offer gives the seller a great price, and terms show absolute commitment to close on time with no concessions. Knowing what will be a great price is the hard part.

We protect our clients from the consequences of flawed contract Contingencies

Every firm has a library of prewritten contingencies to include when they draft offers for buyer clients. Sometimes a contingency that starts with one firm gets picked up and repeated in the next drafting of another company’s addenda. A flaw in the initial version infiltrates the contracts of the copy cat firms. The chances of the flaw being corrected are directly related to the probability that someone will read the contingency with a critical eye.

Listing agents see offers from multiple firms. When you have ten offers on one property you can expect to see at least three versions of an inspection contingency, two appraisal contingencies, three radon testing contingencies, a couple of modifications to the financing contingency, and a variety of random contingencies for the buyer to complete due diligence.

Do listing agents read the contingencies of each offer, every time, before they present the offer to their home selling clients? Some do. Rarely have I met a REALTOR who is in the business of real estate because they love contract work. For some reason, this contract dependent field is loaded with contract averse practitioners.

Protect Yourself. Poorly written contingencies put you in a bad spot when the problem they created comes to a head. At Essential Real Estate we make it our business to know the terms of every member firm’s contingencies. Our clients reap the benefits our knowledge and they avoid the headache of being trapped in a flawed contract.

When Interviewing Agents, Ask Better Questions.

When interviewing real estate agents to sell their homes, owners have been asking the same questions forever. Even in modern times where our resources to possible questions go way beyond books with a moldy copyright date, we still get the same dribble. Google the phrase “Questions to Ask a Realtor?”

About twenty-two million hits include top answers like:   How long have you been a realtor? Have you sold homes in my neighborhood? What’s your list price to sale price ratio? Can I see your real estate license?

I could list more, but they get more pathetic. No one wants to read this stuff. There are smart questions to ask a Realtor if you want to find out if and how the agent can help you accomplish your goal. These rarely asked questions will reveal if you are talking to a person who thinks and solves issues. I come prepared to bring these questions into the conversation because making a decision on facts that require thinking and matter to the outcome are more useful. Consider these:

  1. From what you’ve heard today, please tell us your understanding of what’s important to us. 
  2. What problems have you encountered with your clients in a situation like ours, and how did you resolve them?
  3. Considering what we need to accomplish, what should we be aware of in an offer? What are the things that will be risky for us?
  4. Describe what happens once the information goes into the MLS and take me through your plan to the day we look at offers. 
  5. Multiple offers are likely. Please tell us how multiple counters work and your experience using them. 
  6. Please share an example of something you spotted in an offer brought to the seller’s attention, and they avoided it.
  7. What examples do you have of how you cooperated with other brokers, and the results were good for your client?
  8. How did you and or your firm decide your commission rate should be _____?
  9. Will you agree to a lower rate? If the answer is NO, ask, Have you or your firm ever charged a lower commission?
  10. I was hoping you could give me one idea that you know that other agents probably don’t that you know will either increase my final net.
  11. OK. I know you want to show me your company’s marketing plan. I’d like to see it. How much will it cost your firm to run this plan?

 We are Essential Real Estate. The insight you will get from a conversation with us will change your outcome for the better. We’re also going to increase your final net by at least 2% compared to brokers who charge a commission of 6%. Simply by charging a fee tied to the power of the market.

We will show you our value is in our ability to represent you with smart negotiation strategies. We show you how important it is for you that we keep your business confidential. We show you how the terms of offers unless modified, are dangerous/risky for you. We show you how we will prepare for a smooth transaction by eliminating buyer opportunities to surprise us late in the game. 

You don’t just want your home sold. You want your home equity for your next plan. The more of your equity you keep, the better. We make sure you keep more equity by charging a better rate and protecting you from things that can go wrong at the worst possible times. 

You’re home will be sold regardless of who you hire. What you keep and what you lose are determined by the skill of your agent and the cost of the service.