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?

PAC Donations unintentionally fund Efforts to Enact voter supression laws.

The National Association of REALTORS and member associations across the country should pay attention to the voter suppression consequences gaining momentum in States where Republicans hold power. Through the Political Action Committee arms of trade associations REALTORS are heavily invested in politics. By choosing to support candidates who vote favorably on real estate issues, Association PACs are pumping money from members into voter suppression efforts which the members do not support.

The Associations are not misleading members into funding unconstitutional efforts. Enabling unconstitutional laws to be enacted is a consequence of supporting candidates on narrow criteria of a favorable position on self interests.

If members believe it is best to elect lawmakers based on their support of our narrow interests and disregard the consequences of giving these same people the authority to tread on constitutional rights, giving money to a PAC is one way to keep clean hands. For those who don’t seek to hide behind walls of plausible deniability, giving directly to candidates is a responsible alternative. Expecting politicians to agree with everyone on conflicting opinions is what we do and what politicians tell us they will do when seeking votes and money. When the time to vote comes, they have to pick a side. If we like a candidate because they support property tax deductions on income taxes, we better know where they stand on civil rights.

It’s time we see that we’ve elected a significant number of politicians who are not interested in the Constitution of the United States. REALTORS are smart enough to make their own decisions on candidates. Giving money to a PAC reduces the impact of your vote and fuels the efforts to restrict your rights.

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.

You Captured a Lead. Now What?

The thing about capturing leads is once you catch em, what do you do with them?  

Accumulating names and numbers of folks who look at houses or converse about housing topics has never been more efficient. For a fee, thousands of services exist to fill your pipeline with leads. But, what about the real estate agents? How ready are they to be an asset in the process? What do the agents know, and is their knowledge vital to the outcome? 

The education requirement to test for a license is not rigorous. Seventy to ninety percent of applicants pass the test. Partnering with a broker is more a choice for the licensee than the broker. I know everyone says they have high standards for selecting agents to join their firms. It’s possible to apply objective means to determine if actions match words, but I haven’t seen it done. 

The role of the licensee is specific. Limitations vary from one state to another. A license to practice is not a certification of competence. There are plenty of administrative duties and several real estate law responsibilities and authorities granted with that new license. Is there too much choice for a licensee to learn before practicing or learn on the job? 

Education is not free. Someone will pay the price of an agent’s learning. 

What would happen if a newly licensed person was required to show competence gained from a thorough apprenticeship before they are permitted to work with a client without a skilled practitioner on their side?

How eager is the new licensee? It depends. Keen to have a closing is certain. Anxious to have to do real estate transaction work is less likely. 

Searching for and showing homes doesn’t require much confidence. The real estate license law work triggers high anxiety in typical new agents. Competency calms the stress and increases a person’s ability to be a contributing factor in a transaction. Confidence does not require competence. Without demonstrated competency, having faith in oneself and a desire to make money is enough for some brokers to let their agents go to work. My compliments to the broker who keeps here new agents learning under a competent mentor until the new agent has demonstrated they can work within the rules. 

What holds you back? Walking out of the building with a license in hand and going to work selling real estate on day one is possible. I was one of those new agents, highly confident, and minimally competent on Jan 1, 1989, my first day in business. I know and have mentored agents who have confidence galore, unwilling to sit any longer to learn, and those with no confidence who wanted to learn more. Both approaches produce highly effective real estate agents. 

What Are Your Trained to Do? Real estate is a transaction business subject to laws, rules, ethics. Our authority under a license is not lead generation, lead capture, social media marketing, blogging, or hosting an open house, farming, drip campaigning, socializing, joining clubs, or hosting first-time buyer seminars. By looking at real estate courses available, I get the impression that these are critical abilities to making money. I don’t know that they are essential to providing useful real estate service to the consumer, but that’s just my opinion.

Become Skilled at Licensed Real Estate Work. What comes first, the chicken or horse? The cart or the egg? Can you get business without competency? Can you gain competency without interaction with consumers? I believe you can. Yes. But this is not the vital question. Let’s ask instead, “How effective for the consumer can we be when we start with more confidence than competence; more enthusiasm than aptitude?” 

What advantages do we bring for our clients when we develop competence and aptitude before capturing good people who have high expectations of the real estate industry? I’d love to hear your thoughts?

Submit Your Best and Final Offer…the first time.

“I hope the offer is written well enough to get my buyer’s the home that they very much like.”

The agent who made this statement takes responsibility for the outcome. Their client is in good hands. We like to think about the buyer’s ability, the state of the market, or the field’s unfairness as the reasons our client didn’t get the accepted offer. When you take that thought to the next logical step, aren’t you saying you and your ability are not essential to success? Are you sure you want to admit you’re along for the ride, and your skill is overrated? I don’t think we want to say that. 

I once thought that way. I was a highly effective buyer agent in a buyer favorable market. A lot of people were. When the market turned to favor the seller, more offers returned as rejected than accepted.  Eventually, I became motivated to find a solution I could control to give my clients a chance. By learning the purchase agreement and the contingencies we agents add to our clients’ offers, I discovered the owner’s decision to accept or reject my offers was already determined when I handed it to the listing agent. The skill I developed was shared with agents I worked with as far back as 2014. From time to time, I see their offers come in on homes I have for sale. Everyone is not going to hire me as their buyer agent, I know that. I’m glad to see people benefit from the work other agents did to learn and apply the skills they learned.

Awareness and Acceptance. Before we can stop doing stupid, it helps to become aware of our part in the outcome. When we then accept our responsibility, we become open to change things that don’t work. Get to here, and the change will come from learning. To learn, we can’t just accept the opinions of other people. Knowledge happens to those who participate in the process of challenging beliefs, their own, and those of others. 

Please Submit Your Best and Final Offer. If you get this message after you’ve submitted an offer, you are playing with fire if you expect a counteroffer will come or if you doubt that the seller has a strong position. What do you do if you are lucky enough to get this message before the house goes to someone other than your client? A better question is, what can you do to make sure your client has submitted their best offer the first time? If you don’t know how to craft a better offer or guide your client through their options to write their best offer the first time, you’re not going to be able to do any better with a lucky second chance. 

Your Best and Final Offer. A learning experience for buyer agents. In February, I will introduce an online learning opportunity for agents who aren’t going to wait for the market or their clients to get better. If you can read a real estate contract, you can learn my method other agents are using to win the accepted offer. I promise, if you develop this skill, you will never again depend on your client’s ability to outbid everyone on the price to win the accepted offer. Let me know if improving your ability to affect the decision to take your client’s offer is for you. 

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.

drafting flaws. the avoidable cause of rejection.

Beyond the price and closing date, a typical offer to purchase might include ten to thirty pages of standard conditions. Attorneys participate in building the form REALTORs use to draft purchase proposals. Attorneys know every word and every sentence, and every punctuation matter to the interpretation of the parties’ intent. Brokers, licensees, and government officials on form committees have input too. With so many cooks in the kitchen, there’s a good chance the soup they produce will have flaws. 

Given the choice home sellers are wise to commit to buyers who submit offers that can become enforceable contracts. Ambiguity is one reason for a judge to determine an agreement is not a contract. Alternative meanings the parties didn’t agree to is another. I’ve seen enough to know four out of five offers have a flaw that may render them unenforceable, or insufficient for the owner to accept. A counteroffer to clear the deficiencies or errors is unlikely when an acceptable alternative offer is in hand.  

Company Addenda are frequently modified to fit with the current versions of an approved Offer to Purchase document. The creators have the best intentions in mind. And still, the forms go into use with flaws that will cause some sellers to accept another Offer over one that would have been accepted had it not had the defect. I’ll give you a few examples from a 2020 Version of one firm’s Addendum.

  • Financing letter: Buyer shall deliver to Seller written verification that Buyer has been Preapproved for financing, which may be based on criteria such as satisfactory credit history, employment verification, buyer income, and debt ratios. 

What does the company mean by “…which may be based on criteria…”? Is the better word SHALL? I don’t know if may means, might be, or is permitted to be.  Is this ambiguous? Ask a lawyer. The answer might depend on which side is paying the legal bill. 

  • Personal Property: Parties agree that all appliances and personal property included in the sale will be in working order at the time of closing…All personal property in the Offer has no monetary value…

Check with an attorney to decide whether it is safe to prepare a document where the parties agree that personal property left on site has no value to either party. Is it logical to assume if a person wants the thing to be in working order that it does have value if it’s working? I don’t know. I have an opinion. And if the parties do believe there is value, why am I having them sign a form that says something contrary?

  • Earnest Money: If this offer is rejected by the Seller, withdrawn by Buyer prior to acceptance…then the Earnest Money shall be returned to Buyer within 3 days of rejection, withdrawal, or termination. 

A licensee must promptly deposit Earnest Money in a trust account. Let’s say a buyer submits an offer for a property and includes a $10,000 Earnest money check. An agent receives the check. The clock begins ticking on the time the broker has to deposit the check. Assume the check is received on January 11 and deposited on January 12. Later on January 12 the Seller rejects the Offer and accepts a competing offer. Buyer and Seller agreed the $10,000 will be returned by the end of the day January 15. Who has the money? The Seller doesn’t. Maybe the listing broker has the $10,000. Maybe the check has not cleared within 3 days. Can the Buyer take action against the Seller, and does the Seller have a complaint against the listing broker?

An agent who reads and comprehends the terms of the contract should catch these issues. When I present offers with suspicious terms I suggest the Seller get a lawyer’s opinion. As a broker, I will protect my firm from any complaint arising over a dispute related to drafting. These issues may appear to be small. They’re not small when they cause the Seller to move on to the next Offer. That’s unfortunate for the clients. 

Review your addenda and the addenda that comes with an Offer for flaws and ambiguity. Sure it could get cleaned up on a counter. To be the Buyer to beat, you want to be the Offer that doesn’t need fixing.

pay the seller’s share of property taxes. nobody Thinks of this. So use it.

When you realize how to outbid the competition requires more than just the purchase price, you look for places where you can take advantage. No one thinks of this idea. If you use it, a seller will undoubtedly take notice. The Seller’s attention is what you want, and forcing all other buyers to beat you is the way you want the conversation to go.  

Property taxes that accrue from January 1 through December 31 get prorated at closing. Assume the annual property taxes for a house will be $7,000.00. The monthly proration is $583.33. To close on February 28 there will be $1,167.00 in taxes due. The standard language of your real estate purchase agreement might call for the Seller to pay taxes from January 1 to the day of closing. That’s a negotiable item. 

Buyers who have cash on hand advantage can consider changing the contract from Seller paying to buyer paying the two months of taxes. For the small price of $1,167.00, the return could make the difference. Remember, the price is where the attention is, until the Seller looks at selling expenses. An owner decides between one offer and another by comparing Net Equity and the commitment of the buyer. (Security of getting to closing). Increasing the Seller’s net equity this way has an exponential positive impact on the buyer.   

  1. Grabs the attention of the Seller because it’s unique
  2. Causes the Seller to see your offer beats the others on this point
  3. When you have what they don’t they don’t look as good as you
  4. You just gave the Seller a gift of $1,200 
  5. Let’s the owner feel they were clever negotiators shifting their bill to you
  6. If property taxes are deductible on your tax return, you get the write-off 

The difference between first and second place is most likely minimal. Any advantage might be enough to put you in first place.

I Agreed To What? Be Sure You Know What, BEuyond the price, you agreed to permit and accept.

We think about the Offer’s price before putting our signature on the paper to confirm that we accept. I’m reasonably sure every home seller knows the price and closing date they agreed to when they accepted an offer. Many of the other commitments they made and escape avenues they granted to the buyer may not be unknown, but they are often not understood when they say YES to a price. 

We get one shot to get it right and avoid the kind of worries that wake a person at 3:00 AM. Watch for these conditions:

  1. Earnest money of 1.0% might be common, but this is an uncommon market. Maybe earnest money should be enough to cause the buyer pain if walking away became an option.
  2. Property Taxes. If your standard offer form requires you to pay a pro-rata share of property taxes, make sure you know. Tax is a negotiable item.
  3. Financing Contingency. This contingency is not always what it says it is. The buyer may not have promised to prove they have the money in hand before closing. A commitment to lend might be all a buyer gets and uses to verify they satisfied the contingency. If you want more assurance before closing, decide what that is and prepare the proper condition to include before you commit.
  4. Did you agree to permit an inspection of the house and testing of anything? Inspection and testing might have different definitions in a purchase agreement. Inspecting the furnace to see it’s working is one thing. The methods used to determine air quality, lead, mold might be defined as tests. Did you agree to allow a test when you decided to permit inspecting. The presence of some conditions stays with the property for the life of the property. A positive lead test must be disclosed at the next sale and on and on. You can calculate the financial cost a positive test has on the value of a house. It’s more than you’ll like.
  5. Appraisal. The appraisal contingency made its way into purchase agreements when buyers had the upper hand during the recession. Like a tax, contingencies like an appraisal hang on long past their useful life or intent. There was a time when a buyer had a real reason to fear they might overpay. When few sales occur, the value of any property determined by comparison may go down quickly if a couple of people sell below value. In today’s market, buyers are pushing prices to new levels. Who’s responsible for the property not appraising for the purchase price? It may not be you, the seller. Be careful that the contingency doesn’t allow the buyer to bring you back to talk about the price should the appraisal be anything less than the purchase price. A thousand dollars of leverage open everything for discussion. 

It’s still a seller’s market. As long as it remains, you can get a great price and easy terms. The kind you won’t worry about every night for a month. 

Negotiate Fearlessly.