MLS? Zillow? Trulia?

I ran across a blog post by Jay Thompson regarding a story in the Wall Street Journal about on-line home searches. He noted that in his area the WSJ had it wrong. He researched the numbers for the local MLS, Trulia and Zillow. His findings were that Zillow only showed about 10-31% of the listings shown on the MLS, and that Trulia only had between 69-90%.

So, I decided that I should take a look at a few zones in Gwinnett County.

• For 30087, I came up with 442 (FMLS), 457 (Zillow), and 482 (Trulia)

Hhmm… That seems odd. Reviewing 10 of the 33 pages of Trulia, I couldn’t find ANY FSBOs. How can they have more? Well, about 20% of the listings seem to have been sold or expired (and not relisted). I found a similar percentage on Zillow. This was based on a sampling. Furthermore, I found homes on FMLS that were not listed on either Trulia or Zillow. Trulia was a little more accurate.

• Next up, 30043. 842 (FMLS), 467 (Zillow), and 447 (Trulia)

But wait… there are still expired listings from agents, and homes that have already sold but not been updated in the system. I am finding some interesting listings, too. For example, there is a $7.9M property on Zillow (make me move…) that isn’t on the MLS.

• Finally, 30518… 576 (FMLS), 419 (Trulia), and 3673 (Zillow)

What? Ok, now I’m seeing something. Not one of the properties on the first page is in the MLS. Wow, they must have a lot of listings to peruse. Why would anyone use the MLS? Oh, wait… Several ARE in the MLS, just not in the ZIP code that I searched. All of the first page are listed in multiple ZIP codes on Zillow. So, how many houses are acually listed by Zillow in 30518? I don’t know, and I’m not going to wade through them to find out. But, if I were searching for a property in Buford, GA, I’d be a little annoyed that I had to wade through homes in Chamblee (15 miles and 45 minutes away), and Dallas (GA… but still over an hour away) to find houses that were actually in the area I was looking.

So, Lane, what do you think?

I think that Zillow sucks. I’ve done a previous post about their absolute lack of accuracy in their Zestimates in this area. Trulia is a much better choice here, but still not likely to give the latest up to date info, nor all of the options. FMLS is a better choice.

If you want to find a home in Gwinnett County, let me know. I can set you up on a search within FMLS that will go to a custom website… just for you. It’s called the Client Gateway.

Lane.Bailey on Yahoo IM

Or you can email me through my contact form at GarageHomesUSA (When I post my direct email, I get spammed. I apologize in advance for the extra step).

I look forward to hearing from you.

Wandering through the DoJ website

What is it going to take to make them happy? Did someone at the DoJ have an unsatisfactory experience with a real estate agent? Or is it simply that they know our approval ratings are down there with our Democrat led Congress (which would love to have even the dismal ratings of George W. Bush), so we are an easy target?

There is an interesting report called "Competition in the Real Estate Brokerage Industry" that is a pretty interesting read... ok, not that interesting as a read, but interesting to look through because of the way things are presented. I'm going to give my personal impressions after spending the morning looking through it online.

• They really don't like full service brokerage. At every opportunity the report bashes full service brokers.
  
• The data that they use often contradicts what they are trying to point out. Some examples of this would be that there isn't sufficient competition in the industry either at the brokerage level or at the sales agent level. But, the report begins by stating that there are no significant barriers to entry to the sales agent level, and few barriers to entry for the brokerage level. It also states that there is a lot of fluidity in the industry. Finally, it states that competition is fierce... but apparently not fierce enough, because it says that competition is needed to bring prices down for consumers.
  
• More and more consumers are choosing to utilize full service brokerage models... even though there are more brokerages offering other than full service options.
  
• There are very few mentions of limited service brokerages offering fewer services for consumers... but plenty of mentions of consumers saving money by utilizing flat-fee or limited service brokerages.
  
• Commission rates have been going down, but not fast enough for the DoJ. Because home prices were rising, average commissions were still increasing. But, because of the low barriers to entry, the increased competition led to the pie being split more ways. One has to wonder if the DoJ wouldlike to see more agents (more competition) or fewer agents (less competition, but perhaps ?more reason to cut commissions?).
• The DoJ asserts that the MLS is imperative to consumers, but decries the fact that it is owned privately.
  

I was really disappointed. There are so many contradictions, yet in EVERY case, the DoJ asserts that the real estate industry is flawed. The price that is agreed, even though there is fierce competition from many players, must not actually be fair... and is a result of a restraint of competition. The restraint of competition is because there are too mazny competitors...

It goes on...

I think there is someone at the DoJ that dealt with a crappy agent and has decided to go after the entire industry.

Shhh... Can you keep a secret?

This is a serious work in progress.

Three days ago, I didn't know anything about Joomla. I got past the installation, and started populating with content. The first thing on the agenda is getting all of the articles and pertinent blog posts migrated (copied) to the new site as well as put meta tags and descriptions on them.

While all of this is going on, I am having to design menus and figure out the best way to organize the content. The organization has to intuitive for a user that doesn't know what might be there. I think that the organization is the toughest part of this.

So, if you want to play along, feel free to drop in. If you are on in the evening, you might even see the site change around you while you are there. Buttons will pop up on menus. Themes will change. Content will show up... and then move.

It certainly isn't "live" for public consumption, but for those that like watching races just to see wrecks... this might be fun... and it will last for weeks.

What are we doing here? Looking at the housing landscape...

This morning, the NAR kindly sent me this little update through the Real Estate Insights eNewsletter. It explains, quite well, the steps that we will need to move through before the market stabilizes, both locally and nationally. And then, this afternoon, in my REALTOR(R) Magazine Daily Online, I got this story.

Both have something underlying that I think is very important. Congress needs to stay out of the mortgage meltdown issue. While there might be a need for revision of the jumbo loan limits for some high priced markets, anything beyond that will have unintended consequences that would be bad for the housing market. (BTW, unintended consequences seems to be my comment theme of the day) In the second story, there is a mention of Barney Frank calling for more regulation of the mortgage market. He feels it would increase confidence... and it may. But, it would also increase compliance costs, and slow funding. And, as we know from the myriad of regulations that abound for everything the government want to protect, those that mean to be unethical will still be unethical. Those that are hell-bent on buying something they can't afford, will... and they'll still default. But, there will be those on the margin that won't be able to buy their dream home because there is another point of interest, since the regulation means more costs for the lender.

And, as well highlighted in the first linked article, the correction is underway. Before Congress could even think of acting, the market started to fix itself. Is it going to hurt people? Absolutely. Will it hurt people that were responsible in selecting appropriately priced homes and financing products? Not so much. Mostly, the people that will be hurt are those that used products that they didn't understand to buy houses they really couldn't afford. Some did it in ignorance, but many just didn't care or didn't think through the logical conclusion of their actions.

Am I mean to say so? Maybe. But, that doesn't mean I'm wrong.

The good news is that the needed steps are happening (without Congress critters, thank you very much) and the housing market is correcting. Deals are staring smart buyers right in the face, and those deals are selling. As we look in the rear-view mirror of market reports, we can see that the worst is over in many places... and other places still may have some correcting to do.

I like to hang it out on my market reports. For Gwinnett County, I'm calling the bottom of this cycle to be in the next six months. Of course, I might not really see it for a month or two after it passes. And, if something wild happens, all bets are off.

P is for Pictures

If your listing doesn't have good pics, you'd better make it REALLY cheap. REALLY, REALLY cheap.

84% of buyers these days start their search online. They aren't looking for prose. They want pictures. They want lots of pictures and they want those pictures to be good. If there aren't good pictures from good angles that are lit in a manner to let them see the features they want to see, they move on.

Here in the Atlanta market, there are more than 100,000 homes for sale. Obviously these homes are in a variety of price ranges, and locations. They feature wide ranging levels of amenities and finishes. But, do you think there aren't any other homes competing with yours? If one house has great pictures of a beautiful house, and the next has a picture of the front, or even no picture (the horror!!), do you think that buyers are going to spend their valuable time investigating that house? Keep in mind that there ARE houses with excellent and plentiful pictures in their search as well.

There are several steps that one should go through to insure the best possible result.

• Talk to the agent that is going to list your home. Among the things you should talk with them about are staging and photographs.
• Get a consultation from a home stager. You might need to spend some time removing wallpaper, painting, or doing other things to show your home in the best light.
  
• Suck up your decorating ego. Staging for sale is not all about decorating. It is about showing the house in a manner that lets the buyer move in mentally. Homes that are too personal to the seller might be beautiful, but that doesn't mean they are staged to sell.
  
• If you really hate what you were just told by the stager, get a second opinion.
• Complete the needed work. In some cases, this might mean doing the work, in other cases this might mean hiring the stager to "set" the house.
  
• Get pictures. If your agent isn't able to produce quality pictures, get them to bring in a photographer. The higher the price, the more willing your agent should be to bring in a professional photographer. There are some agents that will be able to make great shots, others are pretty challenged. Look at the pictures.
  
• Make sure that your listing looks good on the MLS, as well as on realtor.com. Realtor.com is the most heavily trafficked real estate website, and only REALTORS(R) have access. I would also recommend that the listing be "enhanced", which is an extra service that your agent should have.
  
• Keep the pictures reasonably updated. Snow in the summer, and spring flowers in the winter are clues that the listing has been sitting.
  

As with all things real estate, there are variations. But, it should be easy to get the idea. Make sure that YOUR house looks better on the internet than the house you are competing with. Those pictures ARE the first impression.

O is for Open House

There are two kinds of Open House events. One is for agents, and the other is for buyers.

The agent open house, which might also be referred to as a broker caravan, or simply caravan, is the more important of the two. It allows agents that work in the area to visit the house and see for themselves the condition of the property, and also see if it may meet the needs of any of their clients. One of the problems I have seen, especially as we have moved into a buyer's market, is the incentivization of the agent open house. I get emails almost every day touting drawings, grab bags and gas cards. "Prizes" range anywhere from a $10 gas card to a cruise.

From the perspective of a seller's agent, I would counsel a seller to consider not only having an agent open house, but also making sure there is some type of incentive to get agents out on a Tuesday or Wednesday (the common days for the caravan) and into the house.

From the perspective of an opinionated person, I think it is pretty sad that we have to offer prizes to get agents out to see the available properties and to help them better serve their clients.

Buyer open houses, which are the first ones most sellers think of, are actually less helpful for the seller. Having sat through my share of open house events, I will be glad to volunteer that the primary reason agents hold these events is to meet others and give out their card. I'm sure that there is an occasional sale that can be attributed to an open house, but the attendees generally fall into one of these categories:

• The neighbor. Here is our most popular visitor. They have seen the house, and been curious what it looked like on the inside, or what changes the seller might have made since the last time they were able to get in.
• The passer-by. It's a nice Sunday afternoon, and they are out for a ride... why not? There might be cookies.
• The semi-pro open house visitor. There BETTER be cookies or something. These folks just like to visit houses and see what they have to offer (cookies, bottles of water, cake, hot dogs, etc.)
• The dreamer. They might actually be in the market for a new home... but there is NO way they can buy this one.
  
• The actual possible buyer. Yep, they are hiding in this group. They are looking for a house in this area and price range. They may or may not have an agent (if they are seriously looking, they have an agent, and will find the house regardless of the open house), but were in the area, and thought they might like to get in for a quick look.
  
• The ne'er do well. I have to include this person, too. They are rare, but they are out there. Their goal visiting the property is to see if they can steal something now or later.
  

The dirty little secret is that there are two reasons agents agree to do buyer open houses. The first is because sellers demand it, thinking it will help sell their house. The second is that there ARE buyers to be had, just probably not for the house. To give you an idea about how slim the chances are in finding a real buyer, many agents actually "loan" out their open houses to new agents to allow them to build a database. You can bet if the agent doing the "loaning" thought there was real value in that database, they wouldn't be so eager to give it away.

In a seller's market, the landscape changes dramatically, and open houses are much more viable marketing. Right now, the best marketing is to have a house that shows well and is priced right. Make sure that area agents know about it, and make sure that the house is convenient for them to bring clients to visit.

A is for Appraisal

An appraisal is simply an estimate of value made by a certified appraiser. That is all...

However, there are a few other terms that are often used (wrongly) as interchangeable with appraisal. Other value estimates, such as a BPO or CMA are often confused with appraisals. While all three aim to accomplish the same thing, there are a few key differences.

The most common real estate valuation tool is a CMA. They may also be referred to as CMSs, but are essentially the same thing. While we generally agree on the initials, what they stand for varies from region to region, and even agent to agent. Almost everyone seems to agree on Market Analysis for the MA part, but the C might be either a Competitive or Comparative Market Analysis. So, we can say that a CMA is a Competitive Market Analysis or Comparative Market Analysis. Please note that the A should never stand for appraisal unless the agent is also a licensed appraiser. Regardless of the initials, a CMA is performed by a licensed real estate agent. The value is arrived by looking at comparative properties (comps). Features and amenities are taken into account to adjust for square footage, style of property, lot size and description, as well as general property condition. As with all comp based measures, the similarity and proximity of the comps, as well as the accuracy of any adjustments may have a huge impact on the quality of the result.

Another tool, although less common, is the BPO. BPO stands for Broker Price Opinion, and despite the name, can be performed by agents as well as brokers. The primary market for BPOs are banks or other corporate entities that are trying to get prices in order to dispose of property. A BPO is a bit more in-depth than most CMAs. It will include comps, as well as repair estimates. It allows the reviewer to determine if they are financially better off selling the property as-is, or if they should improve the property prior to sale. Again, the similarity and proximity of the comps will have a major impact on the quality of the results.

Appraisals come in several types, depending on the property being appraised, as well as the purpose of the appraisal. In some cases, especially true when replacement value is being calculated, or if the property is very unique, cost of current reconstruction is used for the basis. This may then be adjusted, again, depending on the usage of the appraisal. For a market value, there may be a mark-down from cost, but for an insurance value, there may not be. Market appraisals are another type of appraisal. These are quite similar to CMAs and BPOs, but may be more in-depth. Usually more emphasis gets placed on square footage and lot size, and less on buyer preferences. When a buyer is getting a loan, this is the type of appraisal the bank will order prior to approving the loan. Also note, that in most instances, the bank will only be concerned that the appraisal comes in higher than the loan amount. The main thing to remember about market appraisals is that they are also comp based, like CMAs and BPOs. The final appraisal type we'll cover is a tax appraisal. The way this is done will vary from market to market, but these are generally the least accurate valuation for a property. Here in GA, the last sale price is the value of the property and is adjusted by a blanket percentage whenever the county commission deems it appropriate. While it is quite accurate right at closing, within a few years, it might be very high or very low, depending on how your specific location has changed in value compared to the more general location you are in. I've seen just as many properties sell for half of the tax appraisal as I have that sold for twice the tax appraisal. For determining the value of a property that hasn't been sold for a few years, it is severely lacking in accuracy.

Are we our own worst enemy?

I think in many cases the answer is yes... we are.

I recently signed up with a site called Hungry Agents. It was recommended to me by another agent. But, as I looked over the way they do business, something occurred to me. Their business model commoditizes real estate agents. They also don't seem to be aware of the difference between real estate agents and REALTORS (R), but that is another post (one day).

For those that aren't familiar, the basic premise of the business is that sellers sign up for the service. They put out the selling of their home to bid by real estate agents. There is a form online that real estate agents fill out stating what percentage we are willing to take the listing for, as well as the percentage that we suggest be passed along to buyer's agents. There is a minimum level of service required for the percentage we quote.

All of that is fine and good. The problem is this...

All that the seller sees is the percentages that the agent quotes. They don't see the agent, their prior performance, what else they might do (the minimum standards are pretty slim by my standards) or anything else. The listing is reduced to only being about the percentage.

My firm offers an "unbundled" service option for $3100 plus buyer's agent commission (we always recommend 3%, but the sellers have the option of making it higher or lower). With the exception of a CMA, the unbundled program offers the minimum basic services required by Hungry Agents. But, for a traditional listing, we offer a lot more services. I would bet that just about ANY full service agent offers way more service than is required by Hungry Agents. But, the problem is that sellers using a service like this see EVERY AGENT as offering the same level and type of service, and EVERY AGENT as being an interchangeable cog that functions the same. We are a commodity. Our service is nothing more than the service of our least capable competitor. Like gasoline.

As I said in Do you have a Unique Selling Proposition, if we don't differentiate, we are a commodity no different than gasoline or concrete. And, for commodities, the only way to set one provider apart from another is price. That is it. The worst thing we can do is turn our service into a commodity.

Final note... I don't really mean to pick on Hungry Agents. I am sure that they are not alone. In fact, there are a lot of companies that are also commoditizing our service. They don't separate themselves from the crowd, and so all they do is cut price. The only reason I highlights HA is that they were the unfortunate souls that sparked the thought.

Local Real Estate Forum for Buyers, Sellers, Investors, FSBOs and others

You know, every once in a while, I have a "duh! Hello!" moment. Today was one of those days.

Back at the beginning of the year, one of my mortgage brokers and I built a forum on my website. Our goal was to provide an arena for buyers, sellers and investors to pose questions to others and to real estate professionals. We also wanted unrepresented sellers (FSBOs) to have a resource that they could use to get information about the selling process.

It took a lot of time, and when we jumped out of the gate, we figured out that getting traffic was going to be tough... and it has been. We've had some traffic, but not the level it needs. So, if you have questions, or comments, or want to share your experiences, feel free to drop in. Here is a link to the forum.

I've also decided to open the forum up to Gwinnett area neighborhoods (I'm actually open to other areas of the Atlanta metro, too). If your subdivision, or neighborhood would like to have a private and/or public forum area, let me know. I can set it up, and allow password only access to your area. Unapproved parties will not even see that the area is on the forum. It can be used to post news, minutes from HOA meetings, postings about neighborhood garage sales, etc. Of course, there is no fee, and I obviously can't make you use me as your real estate agent.

Take a look. If you have any questions, I'd love to hear them.

Do you have a Unique Selling Proposition?

I touched on this in another thread, but I think a lot of people thought it was actually about cars, so I am going to go into a little more depth, and be a little less cryptic. But, the main point of the thread was...

They are saying that they specialize in EVERYTHING. If one specializes in everything, they really mean that they specialize in nothing. I mean, really. How can you specialize in everything?

Now, let's tie this back to real estate.

Have you ever seen an ad that said "I specialize in Buyers and Sellers"? I guess that means that they will deal with anyone but lookers... But, isn't that what everyone else does? Are you truly a specialist if you think you do EVERYTHING? The short answer is NO. the long answer is No, you are a generalist.

Why not just say that you generalize in everything?

So, for agents, in order to separate you from the crowd, you have to separate yourself from the crowd. Was that repetitive? Take a look at the little house books (Hobbs/Herder calls them little house/little head books). Look at all of the agent pages. Almost everyone is using the same template. Almost everyone says the same thing. To look at one of those books, you would think that EVERY AGENT IN THE MARKET is #1 for integrity, service, and production. For the vast majority of agents, they put out nothing that makes them any different than any other agent. And, 20% of the agents out there do 80% of the deals. So, if what you offer is no different than what the next person offers, you are a commodity. There is only one way commodities can compete, and that is by being cheap. If you think all gasolines are the same, will you buy the more expensive one, or will you go across the street where it is ten cents cheaper? If you think your car runs better on Brand B, will you still buy it when it costs a little more? If the Kraft Mac & Cheese tastes the same as the Kroger store brand, will you pay 50% more for it? But, if you family says that the Kraft is better, you'll put that in the cart.

But, we tell prospects the same thing that all of our competitors say, and then we wonder why they put the cheaper agent, or the one that happens to be standing next to the Mac & Cheese, in the cart and list their home or buy their home with them.

But, we tell prospects the same thing that all of our competitors say, and then we wonder why they put the cheaper agent, or the one that happens to be standing next to the Mac & Cheese, in the cart and list their home or buy their home with them. Yes, I said it again on purpose.

Now, the next phase of this little game is this.

Why should someone buy the house that you just listed? If it is just like the 6 other houses just listed in the subdivision, the only way to compete is with price. If you do GREAT marketing to drive buyers to finding it, as soon as they visit, they will see that there are 6 other houses that look just the same. I guess you might be able to creatively route them through the neighborhood so that they don't see anything that is cheaper.

Instead, maybe it would be better to make the house different from the others. Proper staging may make it prettier. (yes, there were three different Atlanta stagers linked in the last sentence...) Having a kitchen that is just a little more modern and stylish or usable may set it apart. Or (my favorite) having a garage that is well laid out for a car person, with epoxied floor, and great cabinetry will also separate this house from the others in the subdivision.

BTW, if you are a builder in the Atlanta area, and want to set your small upscale community apart, contact me. I have a GREAT idea for you.

As always, I'd love to see your comments. Thank you so much.

Real Estate Investing 201

Digging a little deeper into Flipping

In Real Estate Investing 101, Part I, we covered buying a house to resell for a short term profit. In this lesson, we’re going to delve a little deeper into flipping, run a scenario, and examine ways to maximize profit, while minimizing risk and making it happen fast.

Finding an appropriate property

Obviously the first ingredient in a profitable flip is the property. Despite what one may see on TV, it takes a little while to find good candidates. The various types of properties that may make good flip candidates are foreclosures or REO (bank owned properties), fixer-uppers, older homes that need updating, and ugly properties that are otherwise in good shape. Cost is obviously important, but condition is also very important. Remember, not only will there be an expense for the repair, but there is also a cost to carry the property while the repairs are being done. For example, if Property A needs $20k in rehab, can be completed in 8 weeks, and will cost $2k/mo. to carry, it may be more attractive at $176k than Property B, which needs $50k in rehab, will require 16 weeks at $1500/mo. and is priced at $150k. This assumes that they would both be able to fetch the same price at the end of their renovation.

Homes may be in almost any price range. Condos may be purchased for as little as $40k, but sometimes there are opportunities with homes prices at $1M or more. In fact, the pricier homes have some advantages in some markets. Let’s cover a few price levels:

Under $100k – Pro- Cheap, easier to carry if it doesn’t sell as fast, possibly a larger market to sell into after completion. Con- Lots of competition bidding up the prices, requires tight control of expenses to be profitable, lots of market competition.

$200k to $400k – Pro- Fewer competitors bidding up prices, often a little larger pool of properties to pick from, usually higher margins. Con- Requires more capital, appropriate level of fixtures and finishes more important.

Over $700k – Pro- Often more generous margins, little competition, fewer buyers that will do work themselves, more fun to make (home theaters, high-end kitchens, etc.). Con- Bring your checkbook, higher level of capital needed, wrong finishes and fixtures will kill chances of a sale, tastes may be fickle.

Over course, you may have noticed that I left generous gaps. These are guidelines, and in different markets, the actual prices will need to be adjusted.

Putting together the numbers

I have an Excel spreadsheet that I will use to examine the transaction. It is available here. While it isn’t fancy, it does cover the information that we need in order to calculate the cost of the flip, and figure out what needs to happen in order to make a profit. There is nothing worse than getting into the flip, and finding out that you forgot something important, and you aren’t going to make money. Unlike a TV show, it is not very often that you can just raise your price in order to get your money back out of the deal.

When filling out the spreadsheet, the light gray areas are for users to input information. The light green areas have calculated values. Remember, the more accurate the input information, the more accurate your profit analysis will be.

The toughest and most important part is getting the right cost estimates for the renovations. The natural inclination is for these to be under-estimated. Many first time flippers plan on doing all or most of the work themselves. This isn’t a great long-term strategy, but there are advantages. The primary advantage is that the flipper increases the profit margin. However, the big danger is that flippers often under-value their own labor. Using painting as an example, painting the interior of a large home may require 20 gallons of paint. A professional painter may bid this job at $4000. The cost of paint would be approximately $600. A job like this might take 60 person/hours. Entering $600 for the cost of repainting the house does not place any value on the time involved in labor. So, even if the person flipping the property is planning on doing the work, they need to break out the labor for these tasks. More than one person flipping a property has spent hundreds of hours only to find that they $/hr were terribly low.

Putting together a team

A good flipper needs a good team. This is even more important if one plans to have more than one or two properties active at any given time. But, these are the people one needs to have available:

Real Estate Agent- A good agent will know what is on the market, and should be able to quickly determine what a good ARV (After Repair Value) for a given property will be. This agent will also know how to price the property to maximize return. That doesn’t always mean maximum price, those closing costs can add up, and if one’s capital is tied up, one can’t move to the next project.

Inspector- Spending a few hundred dollars for a good inspection is money well spent. Missing a failing HVAC system or a roof issue could cost thousands. Knowing that a particular siding or electrical has shown itself to be unreliable can also be very valuable. If one can find an inspector that will give good cost estimates of repairs and upgrades that need to be performed, one may be able to cut down on the number of contractors that need to be consulted prior to buying a property.

Contractors- These contacts can make or break a flip. If the work is good, fast, and appropriately priced it is well worth paying to have it done. Saving a few hundred dollars and spending a few thousand in carrying costs while you wait for a contractor that is behind schedule is not a good trade. Saving a few thousand, and then having to spend money to fix what wasn’t done well is also not a good trade… especially when you have to carry the property that much longer to get everything done.

Project Coordinator- If more than a couple of projects are running, having a person to help keep everything on track is vital. Even the best contractors will have people that need someone to make sure they are there on time, and doing the right work. Even the best flipper needs a second opinion, and someone to run errands or get the right materials.

Mortgage or Commercial Loan Broker- Carrying costs are another make or break expense. Having the capital to complete the project is a requirement. Being able to continually finance projects is also required. Most mortgage lenders (not brokers) don’t want to loan money to flippers without front loading. They make money by either carrying the loan, or charging up front fees. Since the goal is to NOT carry the property, they need to front load the fees. A good loan source can DRAMATICALLY lower your costs.

Selling strategies

In order to lower carrying costs, as well recapture capital for the next project, selling the property quickly is important. However, giving it away reduces the profit margin. There are a few things that can be done to help accomplish these conflicting goals.

Hire a good agent. They are part of the team. A good agent will help get the right exposure for the property, as well as make recommendations that will make the house more marketable. They will also have access to people that are in their team that will make the sale go more smoothly.

Stage the property. A vacant house makes it harder for buyers to mentally move in. A few rooms that are well staged will really increase the value in the minds of buyers, so it is generally well worth the cost. This is especially true for higher end homes, but may be the thing that tips the balance for ANY property.

Price it appropriately. Many experienced flippers will price a property 3%-5% below market in order to make it sell faster. This reduces “opportunity costs” and also lowers risk. Opportunity costs are the deals that one can’t pursue because their capital is tied up elsewhere. There is no risk after the property is sold.

Research. Plan. Prepare. Remember the old adage that it takes money to make money. This holds true in flipping real estate as well. But, it is vital that the money be appropriately targeted, well managed, and strictly controlled. This doesn’t mean that it shouldn’t be spent, but that it should be spent on the right things, and taking shortcuts may not be the best idea.

The "Dirty Little Secret" that FSBO companies won't tell you!

I keep seeing and hearing about "dirty little secrets" that real estate agents won't tell their clients. Most of them turn out to be pretty stupid points. However, today while going through my morning routine (dead-heading, so my brain needed something to do) I thought of the dirty little secret that FSBO companies don't tell their customers. We all know what it is, but many of us just might have never thought of it this way.

They don't care if you sell your house using their service.

That's it. It doesn't affect their business plan if you sell or don't sell your house through them. They only care if you list your house through them. Their business model is only dependent on you paying $499 (or whatever amount) upfront, and then going on your merry little way. They need as many people as possible to pay the $499 and go on their merry little way as possible.

Sure, they need somebody to actually find a buyer through their service occasionally, but as long as they have enough sales for a few testimonials, they'll be OK. And, they don't care if you sell in 6 days, 6 weeks or 6 months. In fact, some of the companies would prefer that you not sell right away, as they'd love to get another $499 out of you to list again.

Let's compare that to a traditional full-service, commission based real estate agent. No sale = no money. That's right, I don't get paid if you don't sell your house. Let me say it again, I don't get paid if you don't sell your house. I talk with you about pricing, we prepare a marketing plan, and we market your house. After we find a buyer, we help you negotiate the sale, and then we make sure that the buyer follows through. We also make sure that you (the seller) don't run afoul of any rules, or mistakenly breach the contract as we move from contract to closing. We are there to protect you, and help you. We are there to make sure that everything runs smoothly.

Where is the FSBO marketing company? They cashed your check, and they are hoping that you don't call, because it takes time away from getting $499 from someone else.

Please don't forget to rate this post. Thanks.

Pictures are the first (and maybe Last) impression you will give a Buyer

So, don't screw it up.

Do you feel like you should rush out and buy this house?

This particular house isn't listed with an agent (to my knowledge), but is FSBO. But, this is the foot they are putting forward to try to get a buyer. Unfortunately, I have run across NUMEROUS examples that were as bad, or worse, that WERE listed with agents.

In some other cases, there are problems when moving away from native resolution.

Normally, when one clicks on the picture, a full sized image pops up. In this case, it doesn't.

Make sure that when you present your listings, you do so well. The NAR tells us that 84% of buyers begin their search on the web (If I recall correctly). When they see pictures that don't inspire them, they don't look at the house.

Customer Dis-Service, Part I

There are a few things that have my shorts in a bunch... so, here they are. Careful. They've been brewing for a little while.

There is a house in my subdivision that has been under contract since February... that's right, February. It will six months if it closes on time. This house is listed with a flat-fee company. The listed price was reasonable (I'll be curious what it actually sold for). When it went up for sale, it was a well kept house. Of course, now it looks pretty run down. The grass was cut once or twice, and is LOADED with weeds. It is actually a fight to get to the front door.

I didn't really know the seller. His family was transferred out of town, and they had to sell the house. Of course, they didn't want to "pay the commission" to have a full service brokerage. The seller called me and asked if I would show his house if he had a call from an unrepresented seller. I told him that I would, and he could either pay me ($50) to show it, or I could take them as a client and he could pay me 3% if one of them bought it. He told me his friend that lived and worked about 30 minutes away was doing it for less ($20). Ummm... no. Then, he actually told a prospect to drop in on me if I was home and ask me to show the house. Because I am a nice guy, I showed them the house. They had a lot of questions, and took almost two hours. (Think I got paid for that?)

Anyway, he emailed me after I showed the house and asked if I could give him any feedback. I told him that the grass needed to be cut, the bushes made it difficult to get to the front door, and that the house really needed staging. Boy was that a mistake. I got torn into for the grass and the bushes. He didn't want to spend the money to stage.

Remember, this isn't my listing. I'm not making any money here. And, he asked.

Anyway, the folks that looked at the house were somewhat interested, but couldn't write an offer yet. Then, I find out that the house is actually pending. The flat-fee company didn't actually add the kick-out portion on the sale contingency to the contract when he did the contract for the folks that tied it up for the last 5 1/2 months. Someone forgot. Ooops.

Do you think that four or five months of mortgage payments are more than the other 3% commission (he's paying a 3% fee to the buyer's broker)? I might have been able to get the house sold for him and closed a few months ago, but no chance. I wonder if it'll close on time, too.

Buying a Brand New Home... Still Need an Agent?

(This is a re-post of something I put in my forum last year.)

I've spent a large part of the day today working on behalf of a client that purchased a custom built home. While my official duties ended at closing a little over six months ago, I have continued to work with this buyer since that time to try to help ensure that the house we contracted to have built is as it should be.

This brings me to the point of today's blog. Many times buyers that are looking at new homes don't feel the need to have their own agent. "The nice people at the community's office are so helpful," etc. And, yes, they are. However, they work for the builder or the community. They are hired to represent that builder... not the buyer. Unless the buyer brings their own agent, the buyer doesn't have a representative in the process.

Much of the time, it will be fine. However, one may discover that the contract (other than perhaps a standard Realtor Association contract) may have a lot of one sided language in it. A few examples of this might be cancellation clauses, or worthless warranty provisions. One contract that I recently dealt with had a provision that allowed the builder to cancel the contract for any reason or without reason and refund the earnest money and a small amount for damages... right up to closing. Imagine that a buyer sold their current residence, and then the day before they are to close on both properties, the builder decides they can get a better price for the house this buyer has been waiting over the last eight months for. Now they don't have a house to move into, and they may not have a house to stay in. Another phrase that I dealt with allowed the builder to change the specs of the house being built with no notice. They could substitute materials and finishes for others that the builder deemed as "at least equal to" what was ordered by the buyer. Can you imagine a buyer ordering new furniture, and then finding out days before closing that some of the finishes in the house aren't going to be what they ordered, and if they refuse to close they may lose their earnest money, or even more.

Most of the time, the writers of the special stipulations in the contracts are not envisioning these situations. They are trying to protect their clients, the builder, from other issues. But, if the language is there it may be exploited.

In other cases, having a buyer's agent might clue one in to other aspects of the purchase. Perhaps there are other communities that might work as well or better for the buyer. One shouldn't expect that the community agent will point out those other new homes. Or knowing what inducements are being offered in other areas. Also, a buyer's agent will likely recommend an inspection, and possibly other services that the community agent won't recommend. And don't forget financing. Many times the community has special arrangements with particular finance companies. These might not offer the best deal for the buyer, so having an agent that is tuned in to some other sources may reveal other options.

The bottom line is that being unrepresented isn't a great idea, and probably won't save you any money.

For Sale By Owner (FSBO) Math

As promised, I wanted to delve a little deeper into this subject.

The first thing we need to get out of the way is the "Myth of 6%". Since the VAST majority of sellers that are going unrepresented (FSBOs) offer to pay 3% to a buyer's agent, we can cut that number down to 3% (the remainder).

Let's start with an average house, perhaps something around $250k. That 3% is $7500. The next thing we need to do is go after the listing fees that one might pay with a limited service broker or other broker through one of the popular FSBO companies. The MLS fees for metro Atlanta are generally $499.95 and then .25% ($625 for our example). So, let's knock $1125 off of the "profit" for a savings of $6375. Add a virtual tour, and a little advertising (if you want it to sell, you need advertise), and you will probably need to spend between $1300 and $1500. That drops our savings to $5000 (I like round numbers). You should be able to fit a home stager in there for that, too.

Are you familiar with Fair Housing Laws, and the trouble you can get into with the wrong words in any of your ads? If not, you might need to consult with someone. And, then there are all of those pesky papers, like Seller's Disclosures and the like. You'd better budget a couple hundred dollars for consultations on rules, regs and laws about getting everything listed properly. And don't forget to get appraised. You might still have $4500 left from the budget. You might have a little less.

Now comes the fun part. You have to show the house, have open houses, and follow up with prospective buyers, or their agents. For the NE Atlanta market we are currently seeing about 100 days on market for homes that are priced close to the right range. Don't plan on any vacations for the next three to six months. If you leave town, you won't be available to show your home. And, you will need to be able to make yourself available any time a prospect is able to view your home.

So, you made it through all of that...

If you are lucky, here comes an offer. You need to decide what to do. It isn't a seller's market any more, so you will likely not see a full price offer unless you priced way too low. So, you need to prepare the counter and begin the negotiations. Many companies offer this service for around $3000 (those savings are looking pretty slim). Those companies generally offer the support from offer through closing, so we won't cover the hounding to make sure the buyer's mortgage is coming along, and that everything else is lining up for a proper close.

Almost finally, remember that sellers know that FSBOs are unrepresented. They "know" that you are saving 3%, so they price offers accordingly. Never mind that you have chewed up all but a few hundred dollars of the savings trying to get to this point. Buyers that target FSBO homes are looking for a bargain. So, the commission is something that both parties are trying to factor to their side.

And remember that much of the money that you put out in order to save a few hundred (or maybe a few thousand if you have a more expensive home) is spent regardless of whether your house sells. But, if your agent is working off of commission, if your house doesn't sell, you haven't spent that money. You might be out a little for paint or other suggested improvements, but you aren't out thousands of dollars for advertising and listing fees and consultations.

OK, last thing. What is your time worth? As an avid "Do-It-Yourselfer", I can identify with those that want to save money by doing things themselves. But, as I get busier, and my time becomes more valuable, I have started giving up some of those tasks, and spending "Me Time" on things that I enjoy. I still work on the Jeep, but the mini-van goes to the shop. I cut the grass, but tree pruning is hired out. I have an accountant to deal with the taxes of running a business. That let's me spend time with my family, and out in the garage playing with a welder... you know, the important stuff.

For Sale By Owner (FSBO) Study in Wisconsin

As I watched TV recently, I noticed a commercial for a very popular "By Owner" company. There were a string of people giving testimonials about how much money they saved using this company's services.

Then, earlier today I saw that there was an article in the NY Times about how unrepresented sellers (FSBOs) in one city, Madison, WI, when studied between 1998 and 2004, sold their homes for about the same price as represented sellers.

Interesting. I already am familiar with data from the National Association of REALTORS that shows that the median price of MLS listed homes is 16% higher than non-listed, FSBO homes. I also know there are a couple of holes in the NAR data that are big enough to drive a truck through. The glaring issue that I have with the NAR findings is that there is no comparison of homes to see what similar homes might do. It would be a VERY difficult study, since real estate values can be quite finicky. Pegging whether something is selling above, at, or below market value is purely subjective. Finding two similar homes in the same area that sell at the same time is pretty elusive.


BTW, here is the link to the story.


It does require a free membership to view. Of the first things I noticed were that the agent represented homes sold more quickly. There was a 25% chance of selling in 60 days, vs. a 16% chance for FSBO homes. On the average, the FSBO homes took 125 days to sell, and the agent represented homes took 105 days. The next thing I picked up on was that they were always touting the 6% difference, but then mention that the vast majority of people selling themselves offered 3% to agents that bring a buyer. Finally, the FBSO reported prices were just that, prices reported by FSBOs, and there is no mention of concessions. The agent represented home's prices were based on data in the MLS. (We are required to report the final price of the house, as well as any concessions paid by the seller).

One other thing I did notice is that they adjusted prices based on: "timing, for house and lot size and characteristics, and for neighborhoods to make them comparable with sales by agents. They were also adjusted for what the researchers came to believe is an extra bit of shrewdness that FSBO sellers possess."

I noticed that this study has not been submitted to any peer reviewed journal.

I'll cover a little more in a future blog entry.