February 2010

Dual Agency Should Die Peacefully

February 28, 2010 by Larry D. McGee · Leave a Comment 

I read with some interest a post to Inman News regarding Dual-Agency and the interesting comments attached to the article.  It simply amazes me that many of this nations real estate brokers are still embroiled in the often times acrimonious discussion of this out of date concept.

Of course, the underlying issue is simple, and relates to money and control. The argument goes that if a broker represents the seller of real property and brings that property to the market, the broker wants to maximize the potential income and exercise the most control possible over the outcome of the process. If somehow the broker can provide assistance to both the buyer and seller in the transaction, the income is generally greater, and the necessity of working with another broker is eliminated. Of course, the question is, just how can this be done?

The discussion stems from a 1983 FTC study that determined that most consumers thought the broker showing them homes was working for them, when in fact, the broker was, in most cases, working for the seller’s (listing) agent using a practice called “sub-agency”.  With sub-agency, the listing broker was in control of both money and process, offering to compensate a sub-agent if that sub-agent brought a buyer to the closing table. The buyer was a customer.  If the listing agent brought the buyer to the closing table, so much the better.  In that case, the buyer was still a customer. There was little notice or disclosure to the consumer regarding representation or property condition.

As the real estate industry moved into the concepts of representation and disclosure in the early 1990′s, the question of how to maximize income and retain control remained, and thus was born the concept of Dual-Agency, the idea that a single human person can represent the best interests of both the buyer and seller of a unit of real property.  This philosophical legerdemain is somehow accomplished by fully disclosing to both parties that the broker is a “Dual-Agent”, and with disclosure, the question of trust and confidence is somehow set to rest. Evidence is mounting that the  consuming public is no longer willing to accept the concept of Dual-Agency, and since the consumers are writing the checks, the real estate industry might wish to find a better business model.

The answers,or choices, are simple if difficult for the industry to digest:

1. The broker is an agent for the buyer or seller, never both.  This of course affects the income of the broker, and control of the outcome has to be shared, many times with brokers operating at different levels of competence.  But the competency question is really one for the consumer, and consumers are free to decide to choose a more or less competent broker based on their understanding of the process of buying or selling real estate.
2. The broker is a facilitator for the transaction, not representing either party.  With today’s vast amount of readily available information, this concept has certain benefits for all parties, but may affect the amount chargeable to the consumers for the service provided. The question of trust is left unanswered with this approach, sometimes called “transaction brokerage”, and the fact is, most consumers want some advocacy or counsel regarding the purchase of their home or investment.
3. The seller’s (listing) agent represents the best interests of their selling client, and any prospective buyers choosing to buy without representation or the use of a facilitator are customers. Again, with the vast amounts of information available to the public, some well informed consumers may be able to function well as buyers, without any help at all.  Like it or not, many sellers act in their own behalf (FSBO’s) and many times buyers choose to buy without involving a professional broker.

Dual-Agency should be relegated to the dust bin of history, and the real estate industry should move forward in adopting or developing new business models that better serve the consuming public. If not, the debate may become moot, as the public may decide they simply do not need the services of a professional broker to buy and sell real property.

The Home Price Index Shows Some Regions Up, Some Regions Down

February 27, 2010 by Real Estate News · Leave a Comment 

Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December.  Thursday, the public-sector Home Price Index showed the same.

Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December.  And that’s an average, of course.  Some regions performed well in December as compared to November, others didn’t.

• Values in the Middle Atlantic states improved slightly
• Values in New England were essentially unchanged
• Values in the Mountain states sagged, down 3.5%

These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.

For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.

Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not.  Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.

Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers.  National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.

So, when you need to know whether your home in Littleton is gaining or losing value, you can’t look at the national data.  You have to look at your block — what’s selling and not selling — and start your valuations from there.

Price Change Analysis for Denver Homes

February 27, 2010 by Janet Marlow · Leave a Comment 

Note comments  below Condo Graph

Price change analysis is a tool used by the relocation services industry to assist in determining the best time to transfer employees in relation to the best time to buy and sell those employees homes.  Different markets have different peak sales times, and as real estate becomes increasingly global, the cost of buying an executives home becomes a factor in relocation process.

While it would seem to be obvious just when the peak home selling or buying seasons may be for any given market, graphing the data is very useful in our understanding of the obvious. In the case of both of the graphs above, one for detached homes and the lower graph representing condo prices, the peak period in 2009 remained high during the latter half of the year due to the tax credit artificial manipulation of the housing market.

As The Supply Of New Homes Grows, So Does The Opportunity For A “Good Deal”

February 25, 2010 by Real Estate News · Leave a Comment 

The housing recovery showed particular weakness in the New Homes Sales category last month — good news for homebuyers around the country.

A “new home” is a home for which there’s no previous owner.

New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 — the year the government first started tracking New Home Sales data.

Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009′s pace.

The reasons for the spike in supply are varied:

• The original home buyer tax credit expired in November
• Weather conditions were awful in most of the country in January
• Weak employment and consumer confidence continue to hinder big ticket sales

Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it’s a welcome turn of events. Home prices are based on supply and demand, after all.

As a result, this season’s home buyers may be treated to “free” upgrades from home builders, plus seller concessions and lower sales prices overall.

It’s all a matter of timing, of course.  New Home Sales reports on a 1-month lag so it’s not necessarily reflective of the current, post-Super Bowl home buying season.  And from market to market, sales activity varies.

That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It’s a favorable time to buy a new home.

December 2009 Case-Shiller Denver Housing Market In Bona Fide Recovery

February 25, 2010 by Real Estate News · Leave a Comment 

Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday.  The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.

According to Case-Shiller representatives, the housing market is “in better shape than it was this time last year”, but some of the summer’s momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.

Meanwhile, it’s interesting to note the 5 markets that didn’t decline — Detroit, Los Angeles, Las Vegas, Phoenix and San Diego.  Each of these metro regions were among the hardest hit nationwide when home prices first broke.  Now, they’re leading the pack in price recovery.

For some real estate investors, that’s a positive signal.  But we also have to consider the Case-Shiller Index’s flaws because they’re big ones.

As examples:

1. Case-Shiller data is reported on a 2-month lag
2. The Case-Shiller sample set includes just 20 U.S. cities
3. There’s no “national real estate market” — real estate is local

That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.

If the markets that led the housing decline will lead the housing resurgence, December’s data shows that full recovery is right around the corner.

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