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Why The Real Estate Industry Will Change

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aerial view of Neighborhood houses depicting coming changes in the real estate industry.
Disruption in the real estate industry.

There are a lot of industries being changed irrevocably by technology and entrepreneurs. It’s what they call disruption. So far the real estate industry has fought off outside intrusion and kept the status quo. Control of inventory and high commissions are the norm. But for how long? There are a number of reasons why the real estate industry will change and won’t last in its present form. One of those is you learning to sell your home yourself.

The Cost Of Doing Business Will Change

It’s expensive to sell a house. The biggest expense are the commissions but there’s also a host of taxes, fees, and other costs.

According to The Economist Americans paid out 75 billion dollars in real estate commissions in 2019. That’s with only about 7% of homes changing hands. It might not sound like a big number in the context of the entire country but when it’s $13,608 of your money it’s a different story. Zillow.com estimates the average cost of a house in the United States is $226, 800. Some states that cost will be much more, some states it will be less. The average price to hire a Realtor is 6% of the sale price.

Add to that cost the federal and state taxes, closing fees, title insurance, mortgage fees and the cost of moving it can add up to more than 10% of the cost of the house. That really eats into your profits.

The commissions are by far the largest expense. You can avoid those high commissions if you sell your home yourself.

The taxes are unavoidable. It’s the government. The title company that provides title insurance and in some states handles the closing has to be paid. A necessary cost. Depending on how much stuff you have determines how much it will cost you to move. That leaves the commissions. Are they necessary? Sellers are becoming more and more fed up.

Those commissions can strip away your profits. Many home sellers are realizing they can save commission costs by selling their homes themselves. The real estate industry will change from this fact alone.

The Disrupters Changing The industry

Technology has moved in on the taxi industry, run video stores out of business, changed the way we trade the stock market and done away with travel agencies.

We still do real estate the old fashion way. The middleman, or broker, brings buyers and sellers together and takes a significant part of the sellers’ proceeds. It’s not that there haven’t been attempts to overthrow the traditional real estate agent, it’s just that nothing has stuck nationwide.

The main “threat” and most likely to succeed are the iBuyers.

iBuyers

One reason the real estate industry will change are iBuyers. iBuyers are companies, mostly investor funded startups, that buy a home directly from the homeowner. The attraction to iBuyers is no listing time, no real estate broker fees, no staging or marketing and no waiting.

They make money by buying a house and reselling it. The ibuyer uses local data and their own algorithms to determine a home’s value. Then the iBuyer will make a cash offer. If accepted the house can close whenever the seller wants to.

But…as good as all that sounds the iBuyer still needs to turn a profit. They do that by offering less than market value so they can make money on the sale. Or charging a commission. It still cost the seller money, sometimes even more. The attraction is the process is convenient and fast for the seller with none of the usual anxiety associated with selling a house the traditional way using a broker.

Some of the more popular iBuyers are:

Opendoor

Opendoor has its own automated valuation model (AVM) system so it can make offers quickly. The allure to Opendoor as mentioned is speed and convenience. The downside is the 7% commission. Yes, the 7% commission which is even more than a traditional broker charges. Opendoor is starting to gain traction in several cities and has plans for expanding to more.

Knock

Knock helps people that are selling and buying. People that want to move. They do this by buying the new home for them so the client can move and then selling their old home for them once they’re settled in to the new place. Knock also charges a commission of 6%.

Offerpad

Offerpad represents the true ibuyer philosophy. They literally buy your home from you outright then sell it at a profit. You’ll be getting less than full value for your property because that’s how they make money. Buy low and sell high.

Redfin Now

Redfin is a real estate company that in the beginning was hostile to the real estate business. They bragged that they were going to change the way people did real estate by upending the traditional model. The ambitious plan didn’t work out quite as dramatically as they prophesized and in the end they were just another discount brokerage. Redfin Now is an extension of the original company that will make offers and buy homes outright for resell.

Zillow

Zillow is the original real estate disrupter. In the beginning Zillow sold advertising and leads to real estate agents to make money and that’s still the brunt of their business. What Zillow did was insert itself in between the real estate agent and the consumer. They offered a simple way for buyers to browse real estate listings without the need of an agent and then “sold” those buyer leads to agents when they needed help. Zillow made real estate agents nervous because they attracted a lot of attention, but swore up and down that agents had nothing to worry about. Zillow was agent friendly and needed real estate agents to be profitable.

Recently Zillow has ventured into the ibuyer space, positioning itself for whatever happens in the future. Zillow is playing both sides of the fence, a very good move. Again Zillow swears they are only testing the iBuyer path and agents have nothing to worry about but whichever way the business shifts Zillow will be ready. Zillow is truly the 800-pound gorilla in the new real estate paradigm.

Discount Brokerages

Discount brokers are just what they sound like. Some discount brokerages use a flat fee model. They presumably offer real estate services cheaper than mainstream brokerages. They’ve been around forever but recently have been trying to differentiate themselves into something unique and new with complicated pricing structures.

Purple Bricks

Purple bricks makes money by charging a flat upfront fee and then the remainder being paid after the house sells. If the house doesn’t sell the upfront fee is non refundable. It still costs between $8,000 and $10,000 to sell a home through purple bricks but can be less expensive than using a traditional brokerage. The problem with this model is the nonrefundable upfront fee. Purple Bricks is a UK company that tried and failed in the US and Australia.

Simple Showing

Simple Showing is yet another investor funded startup that offers low commission fees, 1% listing fee and 3% buyer agency fee with an up to $5000 buyer rebate. The seller pays a 4% fee in total.

Redfin

Redfin offers a 1% listing fee when you sell and buy through them. That 1% listing fee doesn’t include the buyer’s agent commission, which is generally 3%. Your overall cost will be closer to 4%.

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This is certainly not an exhaustive list of iBuyers or discount brokerages, but enough to give you an idea of what’s coming for the traditional real estate business.

The success of these types of brokerages rests on lower commissions and flat fees, which means less money for the agents doing the work. What makes a career in real estate attractive is the amount of money that can be made. If that money is reduced substantially the field of experienced agents will dwindle. This in turn runs the risk of reducing an agent’s true fiduciary towards the client which is somewhat of a problem in real estate now.

After the investor money runs out time will tell if these types of new real estate brokerages will last and be profitable. We must wait and see if these companies are what will make the real estate industry change.

The Law Is After Real Estate

Courts and government are taking a hard look at what some think are anti-competitive practices. The real estate industry will change drastically if the Government wants change despite the millions spent on lobbying efforts to keep the status quo.

The Trump administration DOJ is investigating the real estate industry. If that course of action is pursued the real estate industry will change, but no one can really predict how just yet.

Some sellers question why they have to pay a buyer’s realtor. Sellers are forced to pay for both their own agent and the buyer agent. A commission is charged to the seller and that commission is split between the sellers’ agent and the buyers’ agent. There have actually been class action lawsuits by sellers against their agents claiming anti-competitive behavior.

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No one knows and no one can be sure what will take hold and what will not but change is inevitable. Antiquated real estate practices are being challenged from all sides. The problem with iBuyers is cost. They offer convenience but don’t address the expense of selling a house. The discount brokerages are offering savings but so are many real estate agents due to competition among themselves. Even so, it’s still a lot of money to sell your house. Money that should be profits for you, the home seller.

What I think will come to pass is more people will realize that with a little education it’s really not that difficult to sell a house. Many thousands of brand new untrained agents do it every day. 10 years ago when I sold my first house I hadn’t a clue what I was doing and just sort of stumbled through it. Since then I have sold hundreds of homes and figured it all out. I know how to sell a house fast and for the most money. And people still pay me a lot of money to do that.

Whatever happens in the long run for the real estate industry happens but what needs to happen for home sellers is profit. They say real estate is the best investment you can make…and it can be.

Sell your house yourself.

Let me show you how you can save thousands of dollars of your own money. Click here!

Joel

Why Your Buyers Financing Matters

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Handing over cash for a home purchase. Find out why your buyers financing matters.

Financing matters. There are many ways and means to purchase a home including paying cash. We’re going to deal only with the ways that matter to the home seller and explain why your buyers financing matters to you.

You may be wondering what financing has to do with you? You’re the one selling the home, aren’t you? Not borrowing money to buy it. The financing has quite a bit to do with the sale actually.

The type of financing your buyer is using can directly affect the time it takes and the probability of making it to the closing table. When you go into contract your house is pulled off the market. If for whatever reason the deal falls through the time off the market could affect your selling price. How? Because it gives your house the appearance that the house has been on the market longer than it actually has.

Say for example your house goes up for sale and 6 weeks later you have a contract. At this point your house has been on the market for 6 weeks. The deal is now 3 weeks in, maybe 4, and the bank says your buyer can’t get financing. Could be a number of reasons like job loss, lied on the loan application or just a bad lender. So now the house goes back up for sale and spends more time on the market. To potential buyers your house looks like it has been on the market for 10 weeks rather than just 6.

Now you may be getting into that stage where people start wondering what’s wrong with the house. Why hasn’t it sold?

There’s a saying in the real estate world, “the longer it sits the less it gets.”

Types Of Financing

Conventional Loan

A conventional loan is a loan between a person or organization and a lender. With conventional financing the loan is not backed or guaranteed by the government. Money is borrowed from a lender and paid back to a lender. If the borrower defaults on the loan the lender gets the hose back and is stuck with it.

Conventional loans generally require more down. The banks like 20% but often will take less and charge the borrower PMI or private mortgage insurance. The theory is the more the borrower has in the deal the less likely they are to default. If they do stop paying back the commitment the mortgage insurance company will take care of it. Why is this important to you? Conventional bowers are usually the strongest buyers, and the easiest loans to get through to closing.

Most conventional borrowers have more skin in the game or money down. Conventional loans usually require higher and better credit scores. Then the idea becomes maybe this borrower is more responsible and less likely to have something “come up” during the loan verification process. You don’t want anything “coming up” during the verification process. That can shut a deal down.

Financing matters and conventional loans are the next best thing to cash.

Government Insured Loans

Government-insured loans are just that. Home loans, or mortgages, that are backed by the government so if a buyer defaults the government insures against losses the lender may incur. There are three types of government-insured financing.

FHA Financing

The Federal Housing Administration is the branch of the federal government that manages the (FHA) mortgage insurance program.

FHA loans are available to just about anyone that qualifies with credit and income guidelines. These loans are very popular because they require a relatively small down payment and are easier to get approved for. Borrowers can get into a house with as little as 3.5 percent of the contract price down. Potential buyers can get by with lower credit scores and even in some cases recent bankruptcies or foreclosures on their record.

FHA loans can come in many forms. Often lenders and FHA offer special programs to help people become homeowners. There are first time home buyer programs, bond programs and others. These are all usually FHA.

USDA/RURAL

USDA loans are a 0 down loan that is designed for low-income borrowers. There are a lot of rules as to qualifying income and type and price of the home. Those rules vary from state to state. USDA loans are the most difficult to get and the get to closing. There’s a lot involved including a very difficult appraisal process. (More on that later)

The VA Home Loan Benefit

The US Government created the VA home loan benefit in 1944 to assist service members returning from the war to be able to purchase homes. Since it’s inception the VA home loan has helped over 20 million veterans and their families obtain affordable financing to buy a house.

The veteran can get into a house with $0 down and no PMI.

VA loans are great for qualifying veterans but a little more work for you. It’s great if you want to help a vet by considering his/her offer from the multitude that you’ll get. Keep in mind the VA loan is a lot like FHA with an even a more stringent appraisal process.

The appraiser requirements are mostly like the FHA requirements, but my experience has shown the VA appraisers are a little stricter. More likely to call you out on what they consider defects.

 There are some fees that the veteran is not allowed to pay and if they come up are the responsibility of the seller, bank or escrow company. Some of these fees are a processing fee (not to be confused with origination fee), closing fee or the cost of termite inspection.

Remember Veterans have given their time and more serving our country and fighting for the benefits we enjoy living here. Just something to keep in mind when considering a veterans offer.

The Government Appraisal process

What concerns you as the seller for Government-backed loans like FHA and VA is the appraisal process. The government has a Stricter appraisal process that may require repairs to be done to the home.

The home must be in a certain good condition. According to HUD handbook 4150.2 the structure “must be free of all known hazards and adverse conditions that may affect the health and safety of the occupants”.  

What Appraisers Look For

Some the things Government trained appraisers look for and how it relates to why your buyers’ financing matters.

  • All bedrooms must have egress (a way out) for safety concerns such as fire. A window is OK if it’s large enough for someone to get out.
  • In homes built prior to 1978 when lead based paint was banned in the US the appraiser will check for any chipped or peeling paint. Painters must have a specific license to deal with lead-based paint and it is expensive to hire them.
  • All steps and stairways should have a handrail. Sometimes if steps are uneven the appraiser will call it out.
  • The heating system must work and be sufficient to create comfortable and healthy living conditions.
  • The roof must be in good condition and, obviously, keep moisture out of the house. It should have a future too.
  • The foundation must be in good repair and able to carry and normal loads imposed on it.
  • The lot should be graded to promote positive water flow away from the house to prevent damage.

I have found USDA and Rural loans to be the most difficult to get through.  The house must be in really good condition and where I live in Kansas that can be a challenge because the maximum allowable home price is so low. When considering an offer using USDA financing be sure your home is in good shape or negotiate the contract with required repairs in mind.   

The three key things to remember what will be watched for any of these Government backed loans are:

  1. Safety
  2. Sanitary
  3. Structurally sound

The following is what I mean by open to interpretation. In the defective conditions section of the FHA handbook it shows how the process leaves you at the appraisers’ mercy. It reads as follows; “Other readily observable conditions that impair the safety, sanitation or structural soundness of the dwelling.”

Defective Conditions

A property with defective conditions is unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated. That’s a quote from the handbook. Some defective conditions include

  • Poor workmanship
  • Defective Construction
  • Evidence of continuing settlement
  • Excessive dampness
  • Leakage
  • Decay
  • Termites
  • Handrails where needed

This is by no means an exhaustive list but will give you a good idea of what to be ready for.

Financing matters

It’s not just about price when deciding on which offer to accept, and you will get many if you follow my training. The type of financing your potential buyer is using could be the difference between a successful closing or more time on the market.

Now, consider this; You have 3 identical offers except one is conventional, one is FHA and one is VA. Which do you accept? Keeping in mind that service members deserve a break.

What Is A For Sale By Owner

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For sale by owner real estate sign and beautiful house
Sell Your House Yourself

It sounds obvious and I guess it really is. What is a for sale by owner? It’s something being sold by the person or entity that owns it.

Mostly though when someone hears or thinks about a For sale By Owner it means a house for sale. A house for sale by the person that owns it or more specifically without the help of a real estate broker.

Why would someone want to go through that pain?

Why A For Sale By Owner?

The number one reason a person sells their house by themselves is to save money. You could consider it making money since your essentially paying yourself rather than an agent.

What’s The Cost

Selling your home yourself without an agent saves you money but costs you work, and time. In economics there is a term called opportunity cost. Opportunity cost is defined as “the loss of potential gain from other alternatives when one alternative is chosen”.

In the case of selling your house yourself the question is what is your time worth? is there something you could be doing that is more valuable than the time it will involve to sell your home? That will depend on the price of your house, what kind of deal you could make with a real estate agent and how much money you make, or your net worth.

The price of hiring a real estate agent like myself is very expensive and it amazes me when people don’t blink at the price. For instance if I “list” your $300,000 home and charge the what consumers consider normal rate you’ll pay me $18,000. Did you catch that? $18,000. You can do the math or I can tell you that’s 6% of the sale price.

Think for a minute what you could do with $18,000.

In a sellers market like the we’re in now, 2019 going into 2020, a house sells really fast as long as it’s priced right. Often the next day or sometimes even the same day. When you factor in that most home buyers are finding the homes they want to see online themselves you have to ask yourself if you really need an agent. Home buyers are searching real estate themselves on sites like Zillow and Trulia. It’s free to advertise your for sale by owner on many online real estate portals like Zillow.

As far as the monetary aspect it can cost nothing at all for the actual marketing. You may need to spend some money getting ready to sell but the sale itself is not that difficult.

How To For Sale By Owner

There are a million and one sites and blog posts on the internet that will give you the basic steps to sell a house. If you want or need more detail I can help you with that by teaching you the same thing I teach other agents. The best practices to squeeze the most money possible out of a home sale.

There is enough information on my site here to get you through it for free.

Whatever you decide to do I know for a fact that in the end, when it’s all said and done, you will be very pleased with yourself.

Now just to figure out what to do with all that money.

Joel

How To Add Value To Your For Sale By Owner

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Adding value to a for sale by owner
Adding Value

Every home seller I meet with wants to get as much money as possible for their house. Often I have found they want more money but don’t want to spend any. That makes sense but isn’t always possible. So how do you add value to your for sale by owner? What is the secret to getting more money. I will show you how to decide what improvements to make.

Remodel projects will generally increase the value of your home. The idea is to get the most bang for your buck. Figuring out first what needs to be done to get your home ready to sell. What updates are needed and what small changes can be made that will make the most difference. Then estimating what the cost will be.

What you want to try to avoid is spending more money than you will get a return on. Technically that’s called an ROI, or return on investment. Any improvements will help the marketability of your home but some could lose you money at the same time. I have seen sellers take on remodel projects that lost them money. Crazy things like a full on kitchen remodel, including cabinets, counter tops and flooring, that really only needed a sprucing up.

Always keep in mind a house will only sell for so much. Appraisers and real estate estate agents use comparative analysis to determine value. That means they compare past sales in the area to determine the value of a house. Those huge and expensive projects will sometimes price you right out of the neighborhood.

There are home remodel projects, or additions, that can actually devalue your home. Think swimming pools, shake roofs (who does that?) or weird paint colors.

Which Remodel Projects Add Value?

Start with the exterior. At least 85% of the homes I show to clients need an exterior paint job. When a house isn’t kept sealed with caulk and paint water gets in and deteriorates the siding and sheathing. If the garage door is old and decrepit, replace it. It’s not that expensive and in fact replacing a garage door is one of the most cost effective ways to add value and saleability.

By starting with the exterior of you’re home you are also creating a great first impression which is super important.

The big remodel projects are Kitchens and bathrooms. They add the most value but are also the most expensive, so be careful. When replacing countertops or flooring always use something neutral that will appeal to the masses. Check your kitchen faucet, it’s a really inexpensive upgrade that can make a difference.

If the flooring needs replaced carpet is the cheapest but not always the favorite. Check and see what trends are in your area. If putting down new wood laminate it’s tempting to use the really cheap stuff but that will show and discourage buyers. You don’t have to spend a ton of money but get something of at least a decent quality. .

The one item I have the most difficulty convincing sellers to do is paint the walls. Painting is not costly, and again, makes a big difference. Use neutral colors.

Another thing to consider is DIY projects. If you’re the handy type remodel costs can be reduced significantly by not using contractors but do not take on projects you are not able to do like the professionals. Watching an episode of HGTV does not make you talented, Be honest.

How Much Should You Spend?

All of these suggestions will add value to your for sale by owner. It’s all about the ROI mentioned earlier, return on investment. Only do projects that are necessary. Of the projects that are decided try not to inject your own opinions or tastes. Research design and home decor trends in your area and match that.

Shop around for the best deal on materials and contractors. Sometimes you can find free installation or flooring and other supplies at a great discount. There’s a lot of competition for your dollar so spend it where you save the most.

If you haven’t already you need to research price trends in your neighborhood and figure out what your house is worth. And what it could be worth. With that information you can now figure out what projects you can do and how much you have to spend.

Do I Have To Remodel To Add Value?

The question of how to add value to your for sale by owner comes down to what condition the property is in currently. If your house has been kept updated throughout the years you may need to do very little. Sometimes simply a good thorough cleaning will do the trick.

Replacing cabinets is costly. Most times all they need is a sprucing up. Consider painting old outdated cabinets. You can use white but check what’s trending. Sometimes the stain has begun to wear off. If that’s the case simply take a rag soaked in stain, matching of course, and rub it over the wood. Then wipe off the excess with a clean rag. Sometimes you may have to spray on some flat varnish depending on how bad the cabinets really are.

If your home is in good condition and somewhat updated it may just be a matter of getting it ready for market. Find out more about that here.

Joel

How To Price Your FSBO Using Zillow

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When real estate agents help you find a price for your home they use the Multiple Listing Service (MLS). Agents do a Comparative Market Analysis or simply CMA. Basically they see what similar homes have sold for recently in the area. These sold homes are referred to as comparables. I’m going to show you how to price your FSBO using Zillow doing the same thing.

Watch the video to see how I price a home on my listings. This is one more thing you will soon realize you can easily do yourself when it comes to selling your home.

Why Price On Your FSBO Matters

Not all homes are created equal. That’s why I like the price per square foot method.

You may have two homes side by side that are the same model and size. One has been updated with expensive top of the line components while the other needs help so of course the updated home is going to be worth more.

In any given suburban neighborhood many homes may look the same. On closer inspection you’ll notice they are mostly of different sizes. That makes a difference. The bigger the home, the more square footage, the more expensive.

Sometimes when I’m at a listing appointment the seller will compare his house to one that sold down the street. He knows nothing about that house. It sold for this much and that’s what I should price his house at. That’s when I have to break it down. Explain, and show, what the real difference is between his house and the “one down the street”. The house down the street is 600 sq ft larger. They just recently upgraded their kitchen. It has 3 car garage ect. ect. ect.

Listing agent showing how to price a house
real estate agent at a listing appointment showing buyers the price.

That’s how to price your FSBO using Zillow. First find the average price per square foot of homes sold in the area over the last 6 months. Multiply that by the square footage of your house. That’s the average. Now adjust up or down depending on the features, upgrades and overall condition of your home. Be Honest with yourself.

Now What?

Once you have that price and your home has been made ready put it on the market to test your price. You’ll know if you got it right fairly quickly. If it’s a sellers market you should get attention right away. A sellers market happens when there are more buyers than there are homes for sale.

If you don’t get requests for showings it means your overpriced. Probably by a lot. If you can’t get potential buyers to come look at your hose it means they aren’t willing to pay that price for it. Personally in a strong sellers market I suggest my clients give it a week. If we haven’t received sufficient attention I recommend we lower the price.

Maybe you have had several showings but no offer. It still means your overpriced for some reason. Buyers are not willing to pay that price or even attempt an offer. If the price is attracting buyers but not offers it could mean something needs to be done to the house. It may need updating or sometimes just a good decluttering and cleaning. In that case you can elect to do the work or simply lower the price.

The only reason a house doesn’t sell is because of price and everything is relative to price.

Joel