Thursday, April 22, 2021

Home Buying Today

My friend Richard sent me this last night.  Hilarious.  And not far off....

Friday, April 16, 2021

Charles Ray Dawson Reviews The Competent Broker

Another Broker's Perspective

From his video I think you can tell, if Charles Ray Dawson did not like the book, he would have no qualms about saying so.  He describes the book as:  How to make money by being competent.  I like that.  Thank you for your kind words.

Find a detailed synopsis of the book here.

Charles mentions that he is going to do a separate video on dual agency.  I look forward to that.

Tuesday, April 6, 2021

Shameful Artificial Urgency

I can just about understand the buyer frenzy.  They are losing houses because of tight supply and competing offers.  Competing offers that are stronger than their own.

It seems to me that the way to win the house is to make the highest and best offer.  Period.  But they've put together their own highest and best, and they fear it is not enough.  So they look for other things they can do.  Unnecessary appraisal addenda, dodgy letters to the sellers, poorly crafted escalation clauses, game-playing offer deadlines, and whatever else they can dream up.

Like I said, I can just about understand it.  But I don't think most buyers are getting very good advice as the business is absolutely rife with incompetence.

As for the sellers, it seems to me, what we have going on is various levels of artificial urgency.  The typical home in this market will get a double-digit number of offers, some of them even sight-unseen.  Well over the asking price and with five-figure nonrefundable Due Diligence Fees.

The sellers are clearly in the driver's seat.  There is no rush.  Take your time, let the offers flow in.  Too many showings one day?  Add a day.  Add an open house.  The sellers truly have all the time in the world.  Those buyers are not going anywhere, because there is no where else to go.

But that is not what we see.  Rather, what we see is the house goes active Friday morning and the sellers demand highest and best offers by Sunday evening.  Why?  WHY??

And that is assuming they leave the house on the market for an entire weekend.

Because worse yet, we see houses go active and then pending in hours.  We see houses sold during the Coming Soon period, where the buyer pool is severely limited.  Again, why?

This urgency is entirely artificial.  It is contrived.

And I just do not believe that this is coming from the sellers themselves.  In this market, no sentient being would accept the first offer.  Or even one of the first few offers.

No, this urgency is contrived by the brokers involved.  As a listing broker emailed me a couple of days ago:  Great bird/offer in hand, take it.

As if there will not be another, better offer tomorrow.  Look, I'm not talking maybe a better offer in a few weeks (those are never better).  No, I mean tomorrow.  And if not, that bird in hand remains in hand.  Give it a day or two.  Please.

That same broker went on to make the very astute observation that:  Selling is very stressful for sellers.

Well let's see.  Ten or more offers in hand, all above asking price, five-figure due diligence.  Hmm, that does not seem very stressful to me.  Rather, the sellers are in a most comfortable position.  But to be fair, I think what he meant is that selling is a hassle.  Especially with so much buyer interest.

I have long viewed open houses as a sham.  But in today's market they finally serve a legitimate purpose:  To get as many potential buyers in the door in the shortest time possible.  Yet many brokers still insist on individual viewing appointments creating and insuring more hassle for the seller.  My advice in this market is to have an open house every day, and if the hassle of selling is too much for the sellers, limit viewings to the open houses.  Problem solved.

But my guess is these brokers do not really care about the seller's stress or the seller's hassle.  The brokers have their own agenda.

Last week, I wrote about a couple of intentional reasons that brokers encourage this artificial urgency.  And if not intentional, we're back to incompetent.  I have always been amazed when brokers proudly scream:  Sold in one day!  As if it is something to be proud of.  But they are indeed so very proud of it.

It is incompetent and shameful.

Monday, April 5, 2021

Bubble Questions

Are we in a bubble or is this the new normal?

How long will the current real estate bubble last?
Buy now and risk overpaying?
Or, wait it out?  Wait for how long?
And if we do wait now, do we not risk that the market will be even worse later?

As John Templeton famously observed, "The four most dangerous words in investing are, This time it's different."  And if we recognize that, we must assume that the bubble will burst...eventually.  Right?  But these things can go on longer than we anticipate.  And longer than some people can afford to wait.

We all know some of the causes, like record low interest rates and easier lending standards.  A record stock market.  Lots of cash sloshing around and an influx of foreign capital.  These are the usual suspects contributing to bubble inducing behaviors.

Less recognized and considered is the influx of millions of illegal immigrants and a government that tolerates and even encourages this.  This is not meant to be a political point.  But no matter what you think about immigration, nationwide our resident immigrants do use a portion of our housing stock.

But there are a few other factors that make me revisit the dangerous question:  Is it different this time?

Note, these are factors for my market, the greater Research Triangle Park area of North Carolina.  I cannot speculate as to what is going on anywhere else.  But here they are:

  • Under-built housing stock.  This will take many years to correct.  And that is assuming that there is the political will to correct it, which I do not see.

  • People fleeing high tax and high expense states and metro areas, looking for affordability, more responsible government, and quality of life.

  • The extended lockdowns finally demonstrated that offices are no longer really necessary.  Meaning that people do not have to live within commuting distance of an office.

These are not mere bubble factors.  These are long term and perhaps permanent changes in the real estate sector.  They will certainly affect the real estate market for a generation.

Will the bubble burst?  Well, it always has in the past.

Friday, April 2, 2021

Brokers and Time and Supply and Demand

Do brokers understand supply and demand?

So today we have extremely low inventory resulting in multiple offers for most residential properties.

And what do the brokers do?  They leave the homes on the market for just a few days.  The median days on market (DOM) count for my area is three days.  But you would be surprised how many houses go under contract in zero days.  That's right, the house is on the market, not for days, but for mere hours.

Why?  And, how?

Demand takes time.  That is, for all potential buyers to see a property, it takes time.  And if a seller wants the highest and best offer, you've got to give buyers an opportunity to see what they are buying.

But here's the thing.  While the seller may very well want the highest and best offer, the broker not so much.  It is not that the broker does not want it, it is rather that the broker does not care.  To the seller, a $10,000 higher offer is a vacation to Hawaii.  To the broker, it's three hundred bucks, tops.  Why wait through the weekend?  Just talk the seller into an acceptable offer and get back to your primary job, prospecting (client acquisition).

And worse, if the broker has lined up a buyer himself, where he makes substantially more money, often double, he has a perverse incentive to limit the access of other buyers.  We call this dual agency, and I would argue that it is impossible to get the highest and best offer in these situations.  I know Mr. Seller, we were going to leave the house on the market for the weekend, but I have this buyer with a solid offer, today.  These days, this often happens because the broker refused to cooperate with other brokers and their buyers.  We call this Coming Soon.

The end result is that brokers work less and/or get paid more.  Either way, the brokers intentionally limit demand.  It is not that brokers do not understand supply and demand.  I think they do.  It is that they are using it to their own advantage rather than to the advantage of their client, the seller.

Now, what is a seller to do?  Well brokers behave this way because you allow it.  Don't!  Tell your broker that you will be leaving the house on the market for a week.  Or at least, through the weekend.

As for dual agency, ask about it before you sign the listing contract.  And disallow it.  If your broker argues in favor of it, you are dealing with someone unethical.  Period.

Find yourself another broker.