04-14-2012 02:01 PM
There is a lot of talk about waiting, waiting, waiting when that just doesn't work for some families unless there are multipe signs that the market is way overpriced. Those days are over, and people who need to buy a home that fits their needs can afford to do so. That's why homes in good locations and in good condition are seeing multiple offers. This doesn't mean it's a "frenzy", just a good time for a lot of folks to buy. Personal story time:
We just bought a home after looking for 2+ years. If anyone outside of the industry studies home prices and trends more than I did, I'd like to meet them. When a home in fantastic condition, at a great price and in the right location came on the market in February, we were ready. There were 12+ offers. Our agent's good advice to do a pre-inspection and include an escalation clause tipped our offer in the seller's favor, and we "won", even with higher bids on the table. The fact that the sellers knew we wouldn't be asking for anything after an inspection gave them confidence that the offer would go through smoothly. 28 days later, we moved in to a beautiful home that we will enjoy for many years to come.
Did the escalation clause mean we paid over listing? Yes, but we paid much less than any other home was listed for in the area per sq/ft, in good condition or otherwise. Total dumps sit on the market priced much higher than our house, and we were able to move in without needing to do a single thing to the property. Maybe I'll finish the fence someday, but that's about it.
I pay a bit more than I did in rent, but I was renting something half as large that had multiple maintenence issues that the landlord took far too long to fix. If the rent kept rising the way it has the last two years, it would have equaled my new mortgage payment (P&I, PMI, Taxes, Insurance) when I signed the new lease in June.
If this is the new reality of the real estate market, for both renters and buyers, adapt and you can get a fantastic deal. Or, listen to the naysayers who will wait, wait, wait, and keep paying more and more as their rent rises every year. No thanks.
04-14-2012 02:23 PM
My line of thinking is along the lines of Dooley and LostInSeattle.
Dooley specifically mentions the feeding frenzy is not happening across the board, but only in a number of sectors of the market. Belltown condos are one sector. Buyers are having a field day in Belltown. The condos are located in a great location, many are priced to draw in multiple offers, including short sales and REOs, and a lot of them are really nice looking condos with views of the water or city. Buyers who want one of these properties and make an offer in a multiple offer situation or buyers who decide to back out when they see multiple offers are frustrated with the situation. I get it. At a fundamental, gut level it feels out of place in a market that has been depressed for so long. It isn't out of place - it's just more of an extreme example of an already depressed market.
These properties are flying off the rack like a Thanksgiving day sale. Not everyone is going to get the apparently sweet deal because the demand in these sectors is high and the supply is limited. This does not mean the market is changing and becoming more healthy. Short sale sellers and distressed property owners don't have the same concerns as non-distressed homeowners. These people want out (Yes, short sale owners care about the consequences of having to do a short sale, but their options are limited), and at these prices and in this location, buyers want in.
LostInSeattle points out some of the irrational factors that are taking place in the feeding frenzy like waiving inspection contingencies. I feel LostInSeattle is right. In my opinion, it isn't a good idea to waive the inspection. I also understand if a buyer doesn't waive it, they may not get the property. Condos in Belltown and in other popular locations have significant systemic problems with some of the buildings, not just the condo. If a buyer is trying to get an edge by jacking up their earnest money, it may not be worth the gamble when an inspection and a review of the HOA documents reveal major problems and it becomes clear it is time to terminate the deal.
Here is a specific example - we are working with a client who really loved this particular condo in Belltown. In terms of looks, price, and location, everything looked great and it was exciting. It turned out it wasn't great at all. We knew we were facing a multiple offer, feeding frenzy situation and we didn't have a lot of time. Still, we had done enough due diligence to find out the condominium had significant construction problems and there was a high probability very expensive litigation was likely on the horizon. The expenses for the litigation could easily be hundreds of thousands of dollars or more. Guess who gets to pay for them out of their HOA dues? If litigation ensues, the best case scenario is winning and getting to pay expensive lawyers fees. Also, don't count on the losing side paying for the winner's attorney fees - it rarely happens. What happens if the case is lost for the HOA? The condo owners get to pay a whole lot more to fix the problem. Brutal. What rational buyer is going to proceed with this situation?
Independent of our due diligence, the listing agent also knew of the construction problems and potential lawsuit so she had to disclose the information. Every buyer who made an offer received documentation from the HOA (there were systemic construction defects in the building, including extensive water damage and the lack of fire stops between each floor). The documentation explained the potential for litigation with the contractor/developer and the potential HOA expenses for any purchase along with a waiver for any potential liability against the HOA. The documentation made it clear there would be no short term concrete answers so there was no benefit in tying up the property in an attempt to gather more information.
From my standpoint the answer was clear - advise my client to move on. If they chose not to take the advice, I would respectfully decline to represent them in the transaction. As disappointing as the client felt, she followed my advice (No matter what you do, some clients won't listen. Some clients can be very difficult and it is not possible to satisfy the expectations of every client regardless of the effort).
Guess what - despite the documentation sent by the listing agent regarding the Red flags discussed, another buyer went ahead and bought the condo. Why would a reasonable person go forward? LostInSeattle and Dooley are right - feeding frenzies don't lend themselves to a lot of rational thinking. In a feeding frenzy, you bite without thinking so you may get the food or you may bite a bomb. Ok - so the buyer isn't thinking rationally. I understand. There are a lot of buyers who are emotionally invested when they buy a home, not just in a feeding frenzy. To a large extent, this is the nature of residential real estate transactions. It isn't just a business decision for most.
Knowing the emotional aspects of a purchase for the buyer, what about the buyer's agent? An agent should not be emotionally invested. The agent's job is to step back and be the buyer's objective sounding board. In this type of situation where the risks are so great, the job of the agent is to try to ground the client and rationally discuss the risks. In my experience, there wasn't any doubt the risks in this purchase far exceeded the benefits. If an agent tells their client otherwise, I would be very skeptical of the motives.
Having established an agent has no business being emotionally invested in the outcome of the purchase, what should an objective agent do in this situation? What did the agent whose client purchased the condo do in this situation? Did they just discuss the issue and if the client didn't care (or maybe did not fully understand), say ok and proceed? Did they say to themselves, someone else would represent this client anyway so why not me? Just go ahead and collect a paycheck? Really? It isn't ok in my book. More important, in the interests of the real estate industry, which does not have a good reputation in general with the public, more agents have to be above the frey.
I received the following email from a client with similar issues:
"Just wanted to send a quick email to thank you for looking out for my wife and I. It is refreshing to know there are people like you out there who care about people like us. Thanks again and we look forward to working with you in the near future."
Receiving an email like this from a client told me although they were disappointed, they knew the truth was being told to them and that their interests were not in question.
A lot of people who have expressed negative opinions about real estate agents on this blog have focused on the high fees related to the services. I think the fees are high, but I think there is more to it than fees. At a core level, most people don't bother addressing the quality of agents because the general common denominator of consumers is a negative perception of the industry in general. I have not met one person, client or otherwise, who has not told me about at least one bad experience they had with a real estate agent. They were not talking about fees. Realistically, I don't think the industry in general as it exists now is going to significantly change. The only way it is going to get better is by raising the bar with higher standards. Someone on the blog, I think it may have been Venturion mentioned the prerequisites for getting a license should be higher like a four year degree.
I have encountered conduct with agents that would have caused them to be suspended or disbarred if they were an attorney. The heart of the problem lies with the industry in general. The real estate industry lacks any real accountability of its agents by the agencies that claim to enforce, regulate and maintain responsibility. Short of litigation, there is little or no enforcement of unethical or illegal conduct. When I have reported or pursued the egregious conduct of an agent with the Department of Licensing or the MLS, they are either not interested, pass the buck or do not have rules in place for any disciplinary action with teeth.
I once notified the MLS I noticed there was a property with a 4 year history (almost 1500 days on market) that just mysteriously disappeared and I was wondering what happened. It turned out the listing agent intentionally changed part of the address (wrote St instead of Ave), which caused the MLS to see the property as an entirely new listing with no history. That would be called fraud. The MLS calls it the intentional manipulation of MLS data. Apparently, it happens so often they felt the need to create a rule. At the time, it wasn't even an automatic fine. The only thing the MLS did was change the address back to the correct address, which allowed the true history to be seen again. Nothing happened to the agent - not even a fine. I checked. The "good news" was the MLS did make the violation of the rule an automatic fine after some work on my part. A fine? What the agent did was fraud. She should have lost her license or had it suspended, and if she were a lawyer, she would have either lost her license for good or it would have been suspended. Either way, there would have been a lengthy publication of the facts with the name of the attorney. While I have heard agents refer to the "Realtors" ethical code they must follow (not many agents are Realtors), having ethical rules is meaningless when there are no significant consequences for violating them.
At the end of the day, there is a whole lot more to the feeding frenzy than just a feeding frenzy.
04-15-2012 10:08 AM
04-15-2012 02:06 PM
Every property is for sale for the right price, or terms.
The people on this thread are falling for the same old tired sales techniques that have had people creating buyer bubbles since 1997. You hire lazy, inexperienced Real Estate agents who are doing the best they can to keep you on the hook. Technology has created an immediate sound bite kind of mentality that has people paying way too much for a depreciating asset class. Buyers say they are putting themselves at sever financial peril for the children, or the schools they need to be in. The reality is they are taking on a 30 year debt at low interest that has them paying twice the price for the property.
If you do buy you need to figure your strategy to pay the property off within seven to ten years. Do it for the children.
04-15-2012 05:35 PM
"If you do buy you need to figure your strategy to pay the property off within seven to ten years"
How many people do that? Rarely any.
Most buyers look at the monthly payment to figure out if they can affort it or not. They also factor in tax savings... that's all.
No one pays off mortgage in 7 years. Payiing off in 7 years makes no sense wen you are getting money for uner 4% interest. Your money can produce better return elsewhere!!!
04-15-2012 07:36 PM