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FAQ VIII: What Do You Mean the House is Already Under Contract?

June 9, 2012 By

FAQ VIII:  What Do You Mean the House is Already Under Contract?Smiley Sold

 Oh, if I had a hundred dollars for every time I’ve heard this question – from clients AND REALTORS!  

 Let me set the stage:  You are a buyer.  You have searches running at every web-site that lets you set up automatic notifications of new listing in a given price range and geographic region.  You’ve had your agent scouring the neighborhood for any signs that someone is getting ready to move.  You’ve even had your agent go door-to-door telling residents he has a buyer DYING to get into a house in this neighborhood and are you perhaps interested in selling – but nothing has panned out.  Then, mid-morning you get the email notification straight from your favorite real estate web-site that the house you’ve been dreaming about has just come on the market!  You text, email, and voice dial your agent to let him know THIS IS THE ONE!  The agent calls to set up a showing and the receptionist informs him the house is already under contract.  What-the..WHAT?

 Two things have likely happened.  First:  the site where you saw the house isn’t updated regularly and the house has actually been on the market much longer than you might suspect.  One of the biggest challenges with listing syndicators is getting them to pull down or in some way identify listings that are under contract or that have already sold.  The second part of that wish is that the syndicators should update their data with as much frequency as the multiple listing services (MLS) provide.  Our MLS, for example, updates listing data every 15 minutes but it may be 24 hours or more before the syndicators download updates – and even then, the updates may only be incremental in that they don’t update existing listing statuses, they simply download the data that has new listings.  It may be once a week or once a month that changes to listing statuses are updated, if at all.

What WhisperSecond:  This listing was being privately marketed as a “pocket listing” prior to being entered into the general market.  A strategy in some brokerage offices is the idea of a Whisper Campaign.  This is a marketing program formulated to put fresh new listings in front of a select group of brokers (usually from the same brokerage) to give them first shot at bringing a buyer to the listing.  Sellers are enticed to agree to this “soft opening” with promises of getting the home sold faster and with less hassle than putting it on the broader, open market. 

The way it works is the listing agent takes the listing agreement and inserts language that says “Seller instructs the listing firm to not publicly market the listing for XX number of days following the execution of this contract.”  However, the listing firm may market this property internally during the same time period.  My beef with this approach is that it creates a false expectation that the seller’s property is being exposed to a truly competitive environment.  Without providing all the brokers in a given market equal access to a listing, the seller may miss out on competing offers that can often drive the purchase price over the list price.  This is usually a good thing for the seller.Rolled Hundreds

 Why would a brokerage do this?  The short answer is MONEY.  If the brokerage has an agent on the list side and an agent on the buy side – that’s two commissions for the brokerage as opposed to having just the list side.  The buy-side commission goes to a different agent outside the brokerage.  If you’re a seller and a brokerage wants to limit the initial exposure of your home to the market – does that seem like it is in your BEST INTEREST?  Again, this brings up the value of agency, advocacy, and different forms of representation.  Take a look at my colleague Dick Greenberg’s post on this topic by clicking here.

 The lesson here is that if you’re tracking new properties on any web-site, be sure to look for the kinds of updates the site is providing.  Does it identify properties that are “Under Contract”?  Does it identify properties that are “Sold”?   Does it state how often the data is refreshed and updated?  At the very least, have a broker in your area check on the properties you’re following as they will likely have the most current and accurate information on any property (publicly) available for sale.

 

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FAQ V: Why do I need a broker when the builder has its own sales team?

June 6, 2012 By

FAQ V:  Why do I need a broker when the builder has its own sales team?

You are interested in buying a home – House under constructionbut not just any home.  You want to buy THE home; your dream home, as the phrase goes.  You’ve been doing research on line until your retinas detach.  You’ve dreamed about the features you’d like to have in your perfect home.  You’ve got numerous Pinterest boards with bathrooms, dens, libraries, home offices, patios, landscaping, garages, master bedrooms, and dining areas.  You’ve likely visited numerous open houses and model homes in different subdivisions.  When asked if you’re working with anyone you state “oh, I’m just looking for decorating and design ideas.”  These activities have been going on so long your spouse and kids think you’ve taken a part time job as a professional real estate researcher.

 

Now, the time has come.  Your investigations are complete and you’re ready to pull the trigger and make an offer.  A friend (a really, really good and smart friend) suggests you contact a real estate broker to help you.  You think to yourself “But I already know what I want and there are plenty of sales people willing to help me at any of the housing developments – won’t that work just as well?”  In short, the answer is no, not really.

 

Builder Blue PrintHere’s the deal.  A builder is a seller.  The builder’s sales team works for the builder, not for you.  Sure it is super easy to waltz in to the sales center, pick out the floor plan, the cabinets, the flooring, the paint colors, etc, etc.  The builder even has its own contract.  Each of these things is designed to make the product look more enticing and improve the builder’s profit margin.  There’s nothing wrong with that.  That’s what business and investing is all about, right – making a profit?

 

But who is looking out for you, the buyer?  Who can you rely on who is familiar with the home buying process?  Who can you rely on who has read and is familiar with numerous contracts?  Who can you rely on who is well-versed in negotiating strategies so that you get everything you want at a reasonable price and will hold up to the bright light of day all of the fine print the builder includes in its contract to protect itself?  In sum, that person is a real estate broker working as your agent.  For a discussion of the value and definition of an agent, please take a look at my colleague, Dick Greenberg’s post on this subject:  Are You Working for Me?

 

Now, this may sound like I’m trying to bash builders and House Framing Trussesthat they are all out to take advantage of every buyer that stumbles into their project.  Not so.  Builders must establish and nurture solid reputations in the communities they serve.  Otherwise, word gets out and fewer people will buy what they have to offer.  However, builders are biased to their own interests.  Who isn’t?  For this reason, it is critical that you have someone in your corner who is biased to your interests; who will stand with you and provide the chutzpah to hold the builder accountable to their agreements; to ensure you’re paying no more than market price for what you’re buying.  In essence, a broker is there to help you attain your goal while helping to improve your own potential profit margin.

 

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FAQ IV: Why is the Zestimate So Much Different Than The Asking Price?

May 31, 2012 By

FAQ IV:  Why is the Zillow Zestimate So Much Different Than The Asking Price?Alchemist

As alchemists struggled to find ways of turning lead into gold, real estate professionals and the industries that support them have tried to find an automated way to determine property value.  The biggest challenge to that end is that in many markets, no two homes are exactly the same.  There are so many variables to consider that even the most sophisticated of algorithms, pulling information from the most comprehensive databases can only approximate the market value of any given property.  The question remains, how close can these auto-generated values get?

More and more consumers are relying on sites like Zillow and Trulia for their personal research on real estate and properties in their area.  Zillow in particular was one of the first listing syndicators to provide automated opinions of value called “Zestimates”.  Originally, these Zestimates were based solely on tax assessment values provided in the public record.  Since most tax assessments are notoriously inaccurate with regard to actual market value, Zillow’s original Zestimates were off the mark both high and low by a large margin (15% or more of the eventual actual sales price).

Data MiningBut here’s the thing about how networks and data mining work.  Over time, Zillow has amassed a tremendous amount of sales data as well as continued access to the public record.  Like a baby whose initial arm and leg movements are simply random wavings and kickings which progressively become more refined movements allowing the child to perform coordinated actions like rolling over, then crawling, then the familiar staggering of early toddler-hood.  It appears Zillow has reached its own toddler-hood but it is still far from the Algorithmaccuracy that a licensed real estate broker (human being) can provide.

Have you seen this?  At the very bottom of the Zillow web-site is a clickable link called “About Zestimates”.  When you click on that link you’ll be taken to what amounts to a methodology and accuracy explanation of the Zillow Zestimate process.  If you click on the “States and Counties” section you can review Zillow’s Zestimate performance as compared to actual sales data for the same properties.  In Larimer County, for example, only 43% of the Zestimates came within 5% of the actual sales price. That means 57% of the homes Zestimated had a greater than 5% margin of error.  Consider this:  The average price of a home in Fort Collins is in the $230,000 price range.  If that’s the range you’re looking in, even with a 5% swing, the Zestimate you receive could be between $218,500 and $241,500.  That’s a total swing of $23,000.  That’s a huge margin when you’re trying to figure how much house you can actually buy (or sell, for that matter).

Broker Price OpinionThis is where using a professional, licensed real estate broker is critical.  These individuals have access to all the current data as well as pools of experience to get you a much narrower margin of error on the value of any given home.  Determining value is numbers based, yes.  However, there is an artistry to viewing the data with an experienced eye that takes into account information not available to the algorithms like paint colors, interior finishes, nearby schools, etc. 

The next time you’re cruising around Zillow, drop to the very bottom of the page and take a look at the accuracy table for your area.  Then call your local real estate broker and ask them for their own accuracy table of recommended list price to actual sales price data.  I’ll bet it’s better than Zillow’s by quite a bit!!

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