Agency Not As Simple As It Looks

It's about that time of year when people start reviewing their professional lives and determine if they want to continue down the same vocational path -- and that thought process leads a lot of people to sign up for real estate classes.

Many real estate agents I've talked to say they made the decision to get into real estate after having purchased a home and seeing a seemingly easy job performed by someone with as much intelligence as they have and then walking away, it seemed, with a big wad of cash.

Now that they have started selling, they have realized that while the job of an agent is not difficult, it does require very hard work (kind of like the job of a ditch digger -- while the concept isn't hard, your back aches at the end of the day). The challenge of agency involves working days on end without any pay; having to fund most of your own business expenses; burning up a lot of gas and spending time with people who eventually don't buy anything; and questioning why you got in this business in the first place when the time between deals (pay checks) is weeks and months at a time.

The average agent in the U.S. in 2003 made about $45,640, according to the U.S. Bureau of Labor Statistics, while their broker counterpart brought in about $74,100. The funny thing about averages in this field, however, is that the rule of 80/20 definitely holds. While you may have a market selling $15 billion, about 20 percent of the agents sell 80 percent of it. Meanwhile, more and more people want to get their hands on the money, so more people are getting into the business every day and that means the pie is getting cut into smaller pieces.

As you seek out your new career in real estate sales, you'll invariably come across want ads in your local paper that read something like this:

"Real Estate Sales Your destiny has come knocking! Entrepreneurial challenge, creative passion, economic oppty. Outrageous splits and training that create super earners. New approach. Technology-driven advantage. Ongoing mentoring. Free software."

(By the way, the above is a real ad I saw in New Jersey.) However, the subtext should read something like this:

"Real Estate Sales (Work as long or little as you want). Your destiny has come knocking! (Yeah, go ahead and quit your day job, leaving behind health insurance, the matching 401K plan, paid vacations and sick leave.) Entrepreneurial challenge (Commission-only income, long hours, including nights and weekends, working with fickle clients and people who are also working with another agent without telling you), creative passion (create your own fliers, marketing materials and promotional stuff), economic oppty. (You only get paid if you come in 1st place, but the income is unlimited -- meaning there's no maximum you can make -- but there's no minimum either).

Outrageous splits (Fantastic -- as long as you actually sell something) and training (we'll point you in the right direction, then you have to do all the work) that create super earners. New approach (we have a new web site). Technology-driven advantage (we have a new web site). Ongoing mentoring (a really busy, successful, but tired agent OR one of our new agents who's had a few deals under his belt). Free software (here are some pirated copies of what I bought)."

Yes -- my comments are tongue-in-cheek, but I guarantee agents around the country are saying, "Yep, he's exactly right." The best thing about a career in real estate is the flexibility. The worst thing about it is -- flexibility. To be a six-figure agent requires hard work, business planning, consistent prospecting and learning how to close the deal. If you have these skills or are willing to learn them, then a career in real estate may be right for you.

Next week, I'll bust the myths about how "cheap" it is to get into the business and what kind of expenses you'll face while building your business.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." His column appears locally in the Washington Times' Friday Home Guide and worldwide via RealtyTimes.com.

When Is It A Sellers' Market?

The ever elusive bubble that the media discusses has pretty much yet to evolve. I did some research and found the first mention of over-inflated properties back in 2001 when RealtyTimes.com columnist Broderick Perkins interviewed several real estate bubble watchers to find out their definition of a sellers versus a buyers market.

Simply put, you know you're in a sellers market when the buyers have little or no power in the negotiating arena during the sales process. These bubble watchers were defining a buyers market as a market where there was a certain amount of inventory on the market -- generally upwards to nine months of homes. Some brought it down to as low as three months and others pegged it right in the middle at six months.

I would default to the lower end at three to six months of inventory. At this level, while buyers are not in absolute control of the market, if sellers prepare the house well and price it right, they'll find multiple buyers at the door; however, all things being equal, it will linger on the market and sellers are more willing to provide subsidies and drop prices.

The way you determine this supply of inventory is by dividing the number of homes on the market in a given month by the number of houses sold that same month. Example: 5,000 houses on the market; 2,500 of them sell. This equals a 2 months' supply of homes, meaning that if no other houses come on the market, all the houses will be sold within 2 months.

Generally, here are the characteristics of a sellers' market:


Booming local economy. Local businesses are hiring at a brisk pace. New companies are opening up shop.

Low existing housing inventory. More jobs are coming into a market where there's not enough inventory to house all the workers, thus creating financial pressure on local resale units.

Builders are not producing enough homes to fill the job base. In the Washington, D.C. market, for instance, the local economy is pumping out more than 80,000 jobs in 2005, yet only about 35,000 houses are coming on line during the same period of time.

Home sales prices are escalating. Over the last several years, the national increase has been in the five to seven percent range. In a seller's market, it's not unusual to experience double digit increases. Some communities could double in price in just a year or two.

Buyer contracts begin to come in non-contingent. Buyers want to purchase a house, period. They no longer offer under list price, ask to sell their house first before settlement, or try to buy without financing already approved. There is no negotiating for the "perfect" terms. Getting the house, is the perfect term.

Seller subsidies disappear. While buyers used to ask for some sort of assistance -- lower price, points paid, closing costs -- the buyers must come to the table without any help from the seller.

High down payments become the norm. Buyers benefit from high appreciation and begin bringing down payments such as 25-plus percent to the transaction.

Appraisals are no longer needed to qualify for the purchase price. With down payments of $100,000-plus, there's plenty of equity coming to the table to ease the risk factor for most lenders so that the appraised value is not as important as the actual purchasing price. If the appraisal comes in $20,000 less than asking price -- that's okay, because the buyer has enough cash to compensate for the lower value.
When you're looking at the other end of the spectrum, the buyers' market would look like this:


Job growth eases or turns into job losses. Local companies are closing, a particular sector goes bust (telecom, manufacturing, etc.) and there are no longer enough people in town to support the local housing inventory.

The above situation creates a higher standing inventory, thus more houses appear on the market as people move out of town to find jobs elsewhere. Builders, who may have been building homes in the tail end of a seller's market, may find that they are now stuck with speculation homes they can't sell.

Foreclosures increase as the local job market softens. This creates a new venue of market with investors moving in to find good deals.

Home prices begin to depreciate and some homeowners will find themselves "upside down" in their property -- owing more on the house than what it's worth.

Some sellers may have to come to the table with money to sell the house instead of reaping a large amount of equity. Meanwhile, other sellers will option for a short sale where they take action to return the property back to the lender instead of filing foreclosure.

A first-time buyer market emerges as the once high prices drop to a level where some can afford to purchase now. This will bring about the use of low- to no-down payment mortgages in a market where they can negotiate the use of such mortgages.

Seller subsidies increase. Whereby the buyers once had to turn over first-born children to the sellers, now it's the other way around. Price drops, closing costs assistance, and other seller subsidies become the norm.
If you noticed, interest rates and the prices of houses did not determine a sellers' or buyers' market. Some of the hottest markets in the past existed in high priced and high interest rate environments.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Post your questions and comments at Anthony's blog.

Are You A Homeowner or A Thief?

A story in This Old House magazine this month details the stealing of a whole house by thieves who deal in used building parts. The crime, in Lindale, Texas, took place, obviously, over several days, in broad daylight and while the hardworking thieves waved to neighbors walking by, assuming the men were just a couple of workmen doing some tasks for the owner.

Antique housing parts -- chandeliers, doorknobs, mantles -- can be very expensive to install or replace and that's why, many times, owners who are selling their homes can turn into thieves when they decide to dismantle such items after the sale of their house without getting permission from the new owners of the house.

Attached items in a house are, indeed, personal property. And though they can be removed, they generally go along with the sale of the house to the purchaser.

Law.com's online legal dictionary, defines this type property as chattel -- "an item of personal property which is movable, as distinguished from real property (land and improvements)."

If an owner has decided to take a piece of chattel along with him once he sells the house, it's best to just remove it before the house goes on the market instead of trying to label it as "does not convey" with postcards or a post-it note during showings and open houses. I've heard home sellers defy all logic when this is suggested by saying, "But it makes the house looks so good." Right. Then why snatch it from the buyers' hands right after they write a contract. If it's a selling point, then it should stay.

A colleague of mine had buyers who fell in love with an older home and especially liked the pewter hardware on the doors throughout the dwelling. And guess what was gone -- not even replaced -- just gone from the house during walkthrough? Have you priced out antique pewter lately? An average 4 bedroom house can have up to 20 interior doors -- these type doorknobs can go for about $35 each – that's $700 worth of hardware if you install all of them yourself. The other challenge presented by snatching chattel at the last minute also angers the buyer and plants a seed of doubt in their mind as to what else is missing and what else the seller has hidden from them in the process?

The removal of chattel explains why most residential sales contracts have a check-off section where traditional chattel items are inventoried. This includes items such as all appliances, ceiling fans, garage door openers and remotes, playground equipment, window treatments, alarm system, etc.

As the purchaser fills out the contract, the buyer agent will check off the items they saw in the house -- the seller should check over this very carefully, just to make sure that they agree with what the buyer believes he's getting with the house. In addition, it could be the buyer has listed items that don't even exist -- such as a refrigerator with an ice maker when no ice maker exists. If the listing agent doesn't notice this and the transaction goes through -- the seller (or agent) could be responsible for a new icemaker installation for the new owners after settlement day.

While you would hope cool heads would prevail over such a small item if a mischeck occurs, however, let's say the above icemaker is checked and during walkthrough the purchasers find it's not in the refrigerator, but it was listed in the contract -- the buyer could demand the seller purchase a new one for them before going through the transaction.

Keep in mind chattel can be used as a negotiation item, as well, which could be why a buyer would request an item that's not even installed in the house at the time of contract.

For instance, if the house has a garage, but no garage door opener, the buyer could write up that they will buy the house, but they want the seller to install a garage door opener as part of the sales contract, thus, that piece of new chattel would have to be installed by settlement.

The biggest thing about chattel is that everyone needs to know what's staying and what's being removed. The avoidance of surprise is the main item to avoid.

Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.

Teardown Housing Becoming Larger Option for Homeowners

When does a house outlive its use and is better torn down than repaired? This question is creating controversy across the country where a shortage in the housing pool has forced this type of infill development.

A teardown is a property that is purchased with a house and then the house is demolished, followed by the construction of a newer, bigger, hopefully, better home. To the new homeowner, the teardown provides an established neighborhood feel in a new home property. In addition, teardowns become more popular in a tight market where land and homes are scarce.

Because the home buyer is purchasing a property at its peak value, it's not an inexpensive venture, either. While the buyer has purchased what is usually a perfectly good house at market price, now he has to absorb the cost of demolition and building a completely new home. One of the most expensive teardowns occurred in Westport, Connecticut earlier this year at the price of $14.6 million. The website keeps track of the Teardown of the Down, which logs the purchasing and tearing down of Westport's aging housing pool.

The teardown phenomenon has even launched a sub-market in the real estate industry where companies establish themselves as go betweens for builders seeking re-buildable lots and buyers who want a teardown property.

So, when should you consider tearing down instead of rehabbing? That was the question I received from a homeowner who had moved into a property that sounded like it needed to be torn down. His list of defects included:


Sagging roof from 3 layers of shingles

Flooding crawl space

Electrical safety hazards throughout

Items that keep creeping up the more we look
The owner is estimating that it will cost about $90,000 to fix up a house on which he already owes $150,000 and that is worth $260,000. Meanwhile, he's priced a modular bi-level home for $125,000 -- but that doesn't include plumbing, electrical and sewer hookup.

Thus, he can either put in an additional $90K or place a new house on the lot and owe more than what the property is worth today, hoping for growth in the equity over the next few years. As you can see from his situation, a teardown could be either a solution or bigger problem. It can also come down to being plainly a financial decision.

One of the most controversial issues that faces local jurisdictions is in the area of urban renewal and how a community's historic character will change with the influx of infill development. Some local governments have established infill surveys or analyses sheets that look at each proposed project to determine its viability and ultimately its approval.

If you're looking to carry out a teardown, your local jurisdiction may have criteria that must be met, such as the city of Davis, California. The municipality's Infill Guidelines, Consistency Analysis report asks questions such as:

Does the project:


Contribute to the development of complete and integrated neighborhoods?

Contribute to a mix of uses in the neighborhood?

Contribute to the variety of housing types, densities, prices and rents, etc.?

Enhance and not erode the existing neighborhood character (this is a real big factor.)?

Create a compatible use with the adjacent community?
The city's website has a really cool that documents with Flash animation the growth of the city over the last 90-plus years.

As communities move forward with land limitations for development, the concept of infill redevelopment will become more prominent. Citizens/homeowners will need to be more aware of the ins and outs, as well as pluses and minuses of this type development as it creeps into our neighborhoods and changes the way and look of how we live.


Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog. Real Estate News and Advice

Outside Factors Determine Leveling Market

Which way is the market headed? And what directs which way it will turn, up or down? These are questions real estate professionals hear on a consistent basis -- especially in light of unprecedented market appreciation across the country.

Currently, the average sales price of a home in the U.S. stands at $219,000 (14 percent more than the same period as last year, according to the National Association of Realtors). So everyone, from the hotdog stand operator to the corner CEO is concerned about what's going to happen.

Frankly, I'm counting on historical growth, national population growth, and the regular cycles of business to take care of any angst I might feel about the market. Nevertheless, there are various factors that effect any real estate market and you'll find all of them at work when the market is moving upward or downward.

Supply and Demand

The first, of course, is supply and demand. If there aren't enough houses to meet the demand, generally, your prices are going to increase, homes are going to sell in a record pace and every Tom, Dick and Harry is going to get a real estate license. In our local market in the Washington, D.C. area, we are seeing an amazing amount of job growth. In the last five years, more than 287,000 jobs have been added to this region's economy -- nearly 100,000 more jobs than the second highest location (Miami), according to George Mason University's Center for Regional Analysis.

Here's the downside, while the region has averaged job growth of 60,000 jobs each year the last 20 years, we've only put up an average of 35,500 houses each year (again, GMU's Center of Regional Analysis numbers). The lack of local plans to allow enough construction of more affordable housing structures has created a housing deficit of which forecasters see no end. In a world of smart growth, local jurisdictions better listen to their Economic Development Authorities in determining development plans, not no-growth advocates who are not anchored in economic reality.

Interest Rates

Though many homebuyers desire prices to drop, this may not always mean lower payments. Again, in the DC market area, a summer leveling off of prices would seemingly provide potential homebuyers with a break on housing affordability -- not so fast.

For instance, in Arlington, the first Virginia suburb outside of Washington, D.C., the median housing price has dipped $20,000 (from $520,000 to $500,000) through the summer, according to the local MLS statistics. Sounds great -- but the interest rates have increased by a quarter point as well, from 5.25 percent to 5.5 percent. Assuming a 20 percent down payment for either mortgage -- the $520,000 purchase with a 5.25 percent interest rate (June's average) would have cost $2,297.17 (principal and interest) per month; while the $500,000 purchase with a 5.5 percent interest rate (August average) will run $2,271.16. The $20,000 price drop saves the buyer a whopping $26.01 per month because of the increased interest expense.

Vacations & Weather

This past Independence Day nearly 13 percent of the DC population left town -- that was 600,000 people, according to AAA. Keeping in mind that at any given time about 7 to 10 percent of home dwellers are looking to move, that means that if the averages held, the Washington area lost anywhere from 42,000 to 60,000 buyers for a week during that holiday season. When buyers leave town, that naturally creates a slowing in the market.

In talking with the Director of Public Affairs at the Mid-Atlantic AAA, John Townsend, his feeling is that we have fewer residents in town this summer than in previous summers. They're finally leaving for vacation and that means fewer buyers in town to purchase, longer times on the market and dropping in prices (though minuscule) until the buying herd returns.

Also, weather can play a large part in what happens in the market. Particularly, weather that shuts down a region, such as a hurricane or snow storm, can reduce the number of buyers flowing through open houses and checking out inventory.

When looking at the effects on real estate, as you can see, it's not always the market. Sometimes it just means everyone's gone to Disney World.


Mr. Carr has covered real estate since 1989. He is the author of "Real Estate Investing Made Simple." Got a personal real estate issue? Questions can be posted at Anthony's blog.