Platinum Top 50 Annual Awards
Our team continuously strives for excellence, and recently, two of our agents were recognized for their hard work and achievements. We are proud to congratulate Hillary Smith and Jeremy Smith on being named Platinum Top 50 finalists this year! PT50 is the most prestigious award, recognizing residential real estate agents that have excelled in the areas of sales, industry involvement, and community service.
Why Choose HomeSmith?
I know there are thousands of realtors to choose from. When my clients move to other metro areas, I’m often tasked with finding them their next realtor. Naturally, I’m looking for a realtor like myself in many ways because I believe myself to be among the best. Here’s what I’m looking for, and also why I’d choose me as your Austin realtor. Response time: It’s a fast paced market. I will get back to you asap. This is not just courtesy, the Austin market requires it! I get a TON telemarketer calls, so I don’t always answer every incoming, but I do return all voicemails, texts, and emails VERY quickly. Test me and see. I’m also pretty 24/7 so nights and weekends are never a problem. Again, the market necessitates this here. In it to win it: This is not a hobby or a side hustle. Not only am I putting in 50-75 hours a week at this, but I’m also pouring my own investment money into this. You can tell by someone’s media and online presence who is really trying, and who is not. We take all this seriously, and it shows.Manpower: Having staff is almost always a plus because there’s more hands on deck to help, even when the agent is tied up in appointment. On top of our realtor teammates, we also have four staff members devoted to admin, research, appointments, inquiries, etc. Current experience: My personal goal is to be closing on at least one home a week. I usually show well over 1000 homes a year, and write more than a dozen offers a week. All this helps me keep a pulse on what the market is doing THIS MONTH, or even THIS WEEK. This matters! In a market like Austin that is changing all the time, having 40 years of experience may not be as useful as having closed 40 homes last year, or even better 4+ homes in the last month. Being out there in the fray every day, having CURRENT knowledge of the battlefield, can make the difference of winning or losing a home, paying too much or bidding too little… Your city guide: While some agents hunker down in one neighborhood, we are Austin generalists. Our spend to meet new buyers every year is WELL into six digits. We’re meeting out-of-towners weekly, and talking with them daily. If not real estate agents, we’d also probably make great city tour guides. We’re so familiar with how to give clear, helpful city overviews that we could probably do it in our sleep. We’ve also designed lots of custom resources to help digest the whole city and find the area that’s the best fit.Investing: I have a double major degree in business, and have been a serial entrepreneur for decades. I speak the language, and investors and I click very well. Whether they want to talk cap rate, cash flow, appreciation projections, etc, I am the man for the job.Education: Besides a long resume of higher education, as a broker I also have far more formal real estate education than the average agent. I also have an extensive commitment to daily reading, just to stay abreast of market changes and developments. You can see lots of commentary on the articles I’m digesting each week on our blog and Facebook page.
A Ridiculously Buyer Favored Process
We work with a lot of people moving to Austin from other states. Although I’m by no means an expert in the contract processes elsewhere, I have had the opportunity to make some observations and say that the Texas real estate contract forms are much more in the favor of the buyer than other places. It’s so buyer favored that it’s really just not fair to the sellers. Why? First of all, once you go under contract the buyer has a dozen ways to get out of the contract, and the seller has none. How is that fair? The second thing is that the buyer can get out of the contract with almost no pain. For a home that costs, say, $300,000 you can likely get 7-10 days option period for only $150, and that’s ALL that you lose when you drop out. Let’s think about this for a minute. What other investment (stocks? bonds?) can you lock in a price, take it off the market for a week, and keep the same price and terms after you’ve had a week to just think about it? That’s exists nowhere else that I know of. Also, within this option period, the buyer can drop out for any reason whatsoever! They don’t even have to give a reason. You can just be in a bad mood, and there’s nothing the seller can do about it. In other states, I hear that there are a lot more contingency periods specified by the contract, but with this blanket “you need no reason” drop-out-period, it really makes things simpler for the buyer. Now perhaps this is not unique to Texas, but it’s also worth mentioning that the seller is highly incentivized to not have the buyer drop out of the contract. This makes sellers bend to buyers more often when they wouldn’t normally want to. If the buyers drop out of contract the home then carries a little more stigma, and becomes a little harder to sell. The seller also knows that Texas law requires them to disclose ANYTHING they find out about the home after inspections. This also makes it more difficult to sell the home to someone else, since they’ll be carrying more information and baggage on the next time around. That makes it more advantageous to keep the highly motivated “bird in hand” instead of letting that buyer walk away. Beyond this option period there are many other ways to get out of a contract, which I can itemize more if we speak in person. I can’t give away ALL of my trade secrets in a blog. 🙂 Anyway, the craziest among the exit clauses is one that allows the buyer to drop out ANYTIME, even the day before closing, if the lender writes a letter saying it doesn’t satisfy their lending terms. Since the lender is almost always on the buyer’s side, there’s really few instances where they wouldn’t help you and write that letter for you. Functionally, this amounts to basically an unending option period! To me this seems SO unfair the seller, and almost unfathomable that this is a part of the contract. This clause also makes it strange that we even we negotiate a set duration for the financing period at all. We realtors go through the motion and act like the, say, 14 days the lender has to get you qualified really means something. We also go through the motions of acting like the option period is important as well. If you can drop out of the contract up to the last day though the lenders help, then what do any of these contingency periods even me. It seems to me like almost all the chips are on the side of the seller. If all of this weren’t enough, the buyer almost never loses their earnest money here. Maybe it happens with a bad realtor, giving bad advice, but I’ve never lost my client their earnest money in my entire career. Besides all the legal ways the earnest money can be argued in your buyers favor, it’s also just a lose-lose situation for the seller because they want to get their home right back on the market. If both parties don’t sign off on the release of earnest money, then a lien could be put on the home which essentially disables the seller from being able to sell the home to someone else. If the seller wants to fight the buyer to keep this money (usually 1% percent of the purchase price), then they might forfeit months of selling opportunity (and carrying costs) while they fight. It’s so against the seller’s interest that it hardly ever happens unless emotions are really soaring. There’s so much more that I can say on this topic, or elaborate on the items already mentioned. Give me a call anytime and I’d be happy to share what I know and experienced.
Which Way Are Things Going To Go?
Everything that’s happening in our world right now is so unprecedented. None of us know what to expect even for the next month. For that reason, I’m reading ten times as many articles and watching the stats more closely than ever before — as often as I can get updates. I think we’re all just looking for any indicators we can find that might predict which way all of this will be going. Below are the macro stats for June and, following it, more commentary. They say about six months of inventory is equilibrium. Below that number is a seller’s market and above that is a buyer’s market, more or less. I’ve been telling people for several months now that inventory is our key metric, as we try to keep a pulse on this market. That number is unlikely to flip quickly. It may eventually start to increase but it will do so incrementally. It could conceivably take YEARS for that ratio to flip and for Austin turn into a buyer’s market. It also might never happen — or at least not in the 2020s. It’s my opinion that if you buy in Austin, your investment will appreciate for MANY years to come. So, why are there often more than 3 buyers to one seller here (especially at the lower price points)? Because of steady job creation. Second to Silicon Valley, Austin is THE place for your IT staff to reside or even headquarter. Austin is viewed as a place with a lower cost and higher standard of living than many of the coastal areas. Tech companies are HIGHLY incentivized to gradually shift their staff here over places like the San Francisco Bay area. This migration of staff may continue for many years to come. Austin also has other economy pockets that are very robust and stable. I wouldn’t want to be a city with an economy based on gaming (Las Vegas) or tourism (Miami) during this time. Yes, the Austin live music sector is suffering but that’s a smaller portion of our mix of jobs. A MUCH bigger part of our workforce is employed by the government, which is generally considered relatively stable and protected, responsible for much less unemployment when times are bad. Also, note that there as been a LOT of data coming out over the past couple of months to indicate that there may be a mass exodus of sorts from the most dense, urban parts of our country as lifestyle preferences change. This could also even be more of a boon to real estate in southern, less dense cities like Austin. Anyway, if I’m putting this in a nutshell, I would say “watch the months of inventory” above all other stats. As long as that stays low, prices will increase and your investment will remain strong. The lower total volume of buyers and sellers may remain low for awhile still but as long as the ratio between the two are so disproportionate, the residential market will remain strong. Does all of this apply to commercial real estate, especially with empty office spaces sitting idle everywhere? I do not know the answer to that but I can, at the very least, say I’m FAR less bullish on that sector. If executives are satisfied with the productivity from the WFH workforce, they may choose not to renew leases and give millions of square feet back to the market. That would certainly result in plummeting prices. The statistics for Austin proper are above. The statistics sheet for the Austin metro as a whole is below, so you can get a more complete picture:
What Do Open Houses Actually DO?
My seller clients sometime ask me “are open houses worth it?” It’s often said that it doesn’t do much and realtors only hold them because it benefits themselves not their clients. While there is SOME truth to this, I’d like to offer some alternative commentary. I’m a high volume realtor, consistently in the top 1-2% of agents in Austin. Even so, I can only remember ever meeting two families at an open house that I ended up closing homes with. Maybe other agents have more success with them but working open houses over the years I would not exactly classify as effectively “self-serving” as many other activities I could have been doing. Although it doesn’t highly benefit me, I still often recommend doing them. Why? Because of the strategic and psychological advantages it provides to my sellers. I’ll explain. A home that sells quickly is usually a home that sells for the highest price. Good realtors aren’t just trying to get a home sold quickly so they can line their own pockets. They primary reason to sell quickly is because that’s the window we can get the highest amount for our clients. Since that is the case, we want to try to arrange as many things as we can so it goes under contract during the first weekend. Having an open house advertised automatically creates a little more sense of urgency among buyers. They think “gosh, if I like this home I better act quickly. If I wait until Sunday’s open house then EVERYBODY is going to see it. I need to beat them to the punch! …Plus if I wait, it might be gone after the open house.” Now this is not necessarily psychological manipulation of the buyers. This thinking is actually quite valid at times, in a fast-paced seller market like this. Buyers serve themselves by wasting no time. Now from a seller agent’s perspective, is it the open house itself that makes the difference, or just the advertising of it? I’m inclined to say it’s the public advertising of it that makes more difference, but any respectable person I think would feel obligated to actually DO the open house that they advertise, so in a sense it doesn’t really matter. The amount of homes that get sold to buyers who would have only viewed it at an open house is probably pretty low, BUT… that also doesn’t mean it’s not worth it. I’ve said before many times, in our brokerage we try to do a LOT of things that make only 1-2% difference on the effective selling of your home. If you do something that makes a difference only 2% of the time, 49 out of 50 of our clients won’t even benefit. If, however, an agent does, say, thirty different “2% better” type actions (as we do) then it DOES end up benefiting MOST of our clients. When you do MANY 1-2% better things, it ends up making a significant difference. Another thing that open house advertising does is puts the home in front of more people. Good realtors know that email notifications are a big part of the game. Some people will set notifications for only the homes that have open houses, so hosting an open house means you land in more people’s email bins. More exposure, broadly speaking, amounts to less days on market and higher sales price. If your realtor is REALLY good at their craft, they might even post the home first and then post the open house an hour later, so that TWO notification emails hit people’s bins. 🙂 A final things that open houses are useful for is giving seller’s an opportunity to stall. It’s almost never bad for sellers to delay responding to offers while more people see the home. Open houses give seller’s a reasonable excuse for not responding right away. “We want to honor the open house we’ve posted for Sunday, and the people who have already scheduled to see it during that time.” If you were to instead tell buyers “we don’t want to respond to your list price offer for a couple of days because we’re hoping for a bidding war, and over list price offers” that tends to infuriate them. The open house provides an excuse to say something else, however, while extending time for possibility of a bidding war. This is rough on buyers, of course, but a seller agent is only employed to serve the best interest of the sellers. This is the way the seller agent does their best service to their clients.
The 2020 Bi-Annual Awards
In these pandemic times, there are no formal award ceremonies, but advertising our resume accolades is still a big part of a realtor’s job. The logic is that an agent that is successful at selling so many homes for other people will also be the best equipped to sell my home. He/she will bring that performance and accumulated experience with him. It’s not bad logic, but I would also recommend taking real human reviews into account as well. In any event, without further ado, here are the Q1 and Q2 achievements of Jeremy Smith: Top 1% Agent (Buyer Transaction) Top 1% Agent (Buyer Volume) Top 2% Agent (Transaction Volume) Top 3% Agent (Total Transactions) All statistics are generated by MLS aggregate reports, and happily presented for reference upon request.
Covid19 and Past Recession Impacts on Real Estate
I don’t have to be the author in order to acknowledge really great content when I see it. Often merely being a curator is the most helpful thing I can do. I follow a lot of newsletters and blogs related to Austin real estate, and this article is a head above the rest, worth sharing. With permission, here is Eric Bramlett from Bramlett Residential: We’ve been monitoring the current crisis closely and have read quite a bit of speculation with regards to the coming recession from different credible sources. Some sources speculate that this will be a very short, V-shaped recession with a strong rebound in Q3, while other sources predict that it will be long and disastrous. We tend to look at the middle ground and predict that 2020 will be pretty bad, with some sort of rebound in Q3, and a return to a somewhat normal market in 2021. Regardless, all reputable sources agree that we’re entering a recession (which is defined by 2 consecutive quarters of negative economic growth.) Since almost everyone can agree that we’re entering a recession, it’s productive to look at how the Austin real estate market was affected by past recessions. We discovered TAMU market data for the Austin-Round Rock MSA from 1990 to present, which is available for download here. We took this information and created 3 charts, which are available here. Since 1990, the USA has experienced 3 recessions: July 1990–Mar 1991 (8 months)Mar 2001–Nov 2001 (8 months)Dec 2007–June 2009 (18 months) The most obvious question for any buyer or seller is “What did this do to home prices?” The surprising and consistent answer is, “Not much.” We don’t have data for 1989, but 1990 finished the year with an average sales price of $81,770 (whoa!) 1991 saw an average of $88,132, which is average appreciation of 7.7%. The 2001 recession saw a very similar lack of price changes. The average sales price increased in 2001 by 1.3% and it increased again in 2002 by 2.6%. The 2001 recession appears to have slowed appreciation, but prices didn’t decrease. (The median price saw similar movement.) The 2008 recession was specifically caused by bad mortgages. The general consensus is that it crashed the real estate market. Looking at the numbers now, that wasn’t the case in Austin. In 2007, the average sales price was $245,178. The average price in Austin bottomed out at $235,887 in 2009 which is only a 3.8% decline. In 2010, the average price was $246,460, which is higher than the 2007 peak. Effectively, we regained the minimal losses that the recession caused 1 year after the recession ended. Most people remember the 2008 recession as a difficult time. If real estate prices only saw a minimal decline in 2008 and no real decline in the past recessions, then why do people reasonably correlate recessions with down real estate markets? Units & dollar volume sold provide insight. 1990 saw 7068 units sold with $580M in volume. 1991 saw 7485 units sold with $662M in volume. This means there were 6% fewer units & 14% less volume sold in 1990 as compared to a recovered 1991 market. The 2001 recession is a headscratcher. Talking with friends and colleagues who worked through this recession, their memories are of a really tough market. The numbers don’t reconcile this, though. 2000 saw 18,321 units & $3.5B in sales. 2001 saw 18,095 units & $3.5B, and 2002 (post recovery) saw 18,414 units & $3.6B. These numbers are close enough that they’re effectively rounding errors and it’s safe to say that the Austin real estate market was unaffected by the 2001 recession in terms of sales. Again, 2008 showed more movement. During the 2008 financial crisis, there was a relatively steep national decline in price because of the large number of foreclosures (which were correcting bad loans.) Most people moving to Austin had homes to sell elsewhere that they couldn’t sell, so they had to rent in Austin and wait for prices to recover there. This took time. At the 2007 peak, there were 27,571 sales and $6.8B in volume. This bottomed in 2010 (one year after the recession ended) at 19547 sales and $4.8B in volume. The bottom represented a 30% decline in sales. This is why so many agents left the business and why sellers remember this as a difficult time. The market was relatively recovered by 2012 and 2013 saw relatively large gains over the 2007 peak. What does this mean for buyers & sellers today? Properties still sell and pricing doesn’t change much. That said, things are generally sluggish. When there is more inventory on the market, it’s generally good for buyers and hard for sellers. Looking at all 3 recessions, there is more inventory & units on the market during a recession. The 1990 recession had an average of 24% more listings on the market than the 1991 recovery and 1990 had 8 months of inventory (firmly a buyers market) vs the 5.8 months of inventory in 1991. 2001 saw more than 2x the number of listings on the market and a jump to 4.3 months of inventory from the 2000 low of 1.98 months. The 2008 recession saw 19% more listings and saw inventory increase by 40% to 5.3 months. The market bottomed in 2010 with 6.3 months of inventory and inventory was fully recovered by 2012. Recessions are very stressful because of the level of uncertainty. There is no realistic way for us to predict which past recession 2020 will most resemble. We think it’s unlikely that the real estate market will be affected as heavily as it was in 2008 because that recession was caused by a fundamental problem with real estate lending. The most likely scenario is that we will see relatively unchanged real estate prices and some level of decline in volume & units sold. I personally think that we’ll see a 20% to 30% decline in 2020, followed by a recovery in 2021 that will be anywhere from a 10% decline to a 10% increase in volume, depending entirely on how severe the virus is and how long the economy sits on “pause”.
The HomeSmith Awards
Under quarantine, you find yourself embarking on more non-essential exploratory tasks than normal. You’ve no doubt seen countless realtors with row after row of awards and accolades in their signatures. It’s just our special way of saying, “Work with me, I’m a winner! I’m really experienced!” These awards are often pretty hollow though, because these award companies are for-profit businesses too. The realtors usually have to pay to be a candidate, and most paying, completed applications do end up getting the award. Surprise, surprise. Then those award companies try to sell the recipients dozens of other products after getting the accolade. The award companies basically award you so they have someone to sell to. Anyway, with the higher broker status I have, I have systems access to look up the stats of all Austin agents. Shamelessly, I’ve decided to give myself some awards! 🙂 I hate the braggy part of this business, but I am indeed applying for a job here. These are a few bullets for my resume, and I’d be happy to present the raw data as proof to anyone who is interested. -Top 1% Agent, Homes Bought in 2019 -Top 2% Agent, Homes Sold in 2019 -Top 5%, Total Real Estate Volume in 2019 -Top 50 Couple Agent Team 2019 There are some interesting notes about these stats as well. These stats would all be much higher if certain things were taken into account. A) Most of the “agents” on the top 50 list are kind of… sort of… well, cheating. They have huge teams (or even entire brokerages) that put all contracts under their own single name. They themselves participate in or oversee few or no transactions over the course of a year. They merely label their transaction differently than the rest of us do. B) Several people on the top ten lists are merely a nameplate for the biggest builders in the nation. DR Horton, Lennar, etc want their homes to be on the MLS, and in many cases, to do so they signed exclusive contracts with one single agent. That builder’s single agent also almost never participates in the transaction itself, for the most part, and just sits back and collects the stats. C) The relative volume of sales we’re doing, we’ve been doing year after year. We’re not flashes in the pan agents or newly compiled team structures as some on the list are. D) Although we do many luxury home sales, we do not exclusively sell luxury homes. Many of the top “volume” producers actually sell much fewer homes than we do, but the difference is they decline average range buyers and sellers. We do not. E) Hillary and I do work as a team, and so if you combine our experience and production, the statistics increase even more. Our combined real estate volume is in the top 75 list, and and easily top 50 if some of the above factors are taken into account and adjusted out. Again, as I’d mentioned, it always feel uncomfortable strutting our peacock feathers, but I suppose anyone applying for a job has to do basically the same thing. I’m telling you, my employer, “I’m right for this job because I know what I’m doing. We have immense experience and network of buyers and sellers that give you an advantage. We have marketing skills and processes that set us apart from the rest, and get the job DONE! Really, you should hire me.”
HomeLight Achievement
We’re grateful to HomeLight for recognizing and awarding our hard work. Real Estate agents earn this award when they rank in the top 5 percent of agents in their area based on historical real estate transaction data. Each year, HomeLight awards agents at both the local and national levels for excellence in 3 distinct categories. As winners of HomeLight Achievements, we’re proud to represent some of the top-performing agents working in America today.
Coronavirus and Real Estate
So, I was in the large group of eye rollers for the past few weeks while everyone’s been clamoring that the sky is falling. Now I see how coronavirus is affecting my own business, and how recession is almost inevitable. I see that the societal pain this is causing is quite possibly a more fearful thing that the virus itself. All you have to do is watch the news to get the latest on the general impact though, so for the time being I’ll just stay in my lane and stick to real estate commentary. I’ve been reading about this pretty exhaustively, and there’s a lot of mixed information going around about the impact on real estate. Most economists I’m hearing now say that a recession is pretty much inevitable, if not already started. From that standpoint, recession always causes a depression in sales and prices. The thing about real estate though is that there’s almost always opportunity for profit either way the market is going. When prices decline, you may be able to grab a deal. When prices are high, you stand to make more money when you sell (or rack up equity until then). A little like the stock market, it’s often a matter of “knowing when to hold them and when to fold them.” So which way will the market go? Well for starters, in case you haven’t heard, we have now hit the lowest interest rates in HISTORY. This brings people out of the woodwork to buy a home, and I hear the lender queues are historically long because of so much business. Some are even increasing their prices because there’s such a long line at the door. Even so, these interest rates definitely serve to fuel the home buying demand, and simple economics dictate that increased demand leads to higher prices. These low rates also really do make a BIG difference in home affordability and long term family savings. In some ways, this makes it both a good time to buy AND a good time to sell. Sellers get higher prices when buyers are out in mass, and buyers get lower house payments at the same time! Economic win-wins situations are rare, and this may be one of those brief situations. For more elaboration on the history of affordability, here is one of the clearest and most comprehensive articles I’ve ever read on the subject. Another big thing that affects the market is the amount of foreign buyers wanting to purchase. These foreign buyers amount to a significant increase in demand, which inflates home prices. A big portion of the foreign buyers in America are from China, which has been the hardest hit by Coronavirus. The question is whether or not coronavirus will push more foreigners into the American market or take them out of it. I wish I had a simple answer, but experts don’t agree. I’ve read articles that predict both directions! Some say they will stop buying for a spell while they’re in hunker-down mode, and others say that the risk and instability in their own country sends them looking elsewhere for places to invest. In unstable countries, the present situation may make it seem more enticing to invest in American real estate rather than in their own country. Time will tell… My own assessment so far though is that buyers HAVE slowed down a little already, at least less activity than this time of year should be. Sellers may already realize this and are often very soon to follow, since many who have time flexibility would rather their home be on the market at the time when there’s the most buyers. MY prediction is that with interest rates so low, it will only delay the peak of real estate season this year, not kill it. Normally, late April/early May is the high-tide time when buyers and sellers are out in force (and June has most closings, since it usually takes 30 days to close). The crest of buying/selling activity this year may perhaps be more toward June, so you may see the highest closing month of the year shift to July OR just see the graph’s curve flatten out a little bit more. This flattening of the curve may simply mean more closings than normal in July and August instead of mostly June. Assuming this corona-hunker-down mode blows over in a couple of months, the seasonality of the school calendar still applies. People need to get their families fully moved before the fall semester starts. Usually families prefer to do this at little bit ahead of time, in the spring, but this year we may see more summer activity because of market late-comers. Now, all bets are off if the economy takes a serious dive, which I just can’t predict. So far I’ve heard the experts say that we’re in for “a more garden-variety version of a recession, not a 2008 caliber recession.” That’s what I’m currently anticipating, and we will hope for the best. I will reiterate, however, that now is still a great time to get a loan. It’s my opinion that if you do plan to eventually purchase, you should not plan on affordability getting better than it is right now. If you want to wait to buy, AT BEST I think you’d see a short plateauing effect in home prices. At worst, you see rates go back up to historically more normal (much higher) levels and home values continue to appreciate every year. With that, the affordability proposition continues to decrease in the extended foreseeable future. If you’re thinking of buying a home and can afford it, I wouldn’t wait too long. What if you’re an investor? I think that’s more complicated, with commentary more tied to the macro economy. In times of more severe, extended recession, because of job loss and income decreases, home ownership in turn decreases while the population of renters increase. Increased supply of renters cause rent prices to go up, thus a good time to be a rent COLLECTOR. It would also be a good time to snag some cheaper properties while people are selling and foreclosure rates are up. In the event of this kind of extended recession, your appreciation rates on your property will lag for awhile, but there’s great money to be made if you’re patient enough to wait it out. If, however, we only end up seeing an economic slowing, plateauing, or even “garden variety” recession, then we may not see dramatic changes in the housing market, at least not in a growing place like Austin with a relatively healthy local economy. Why? Austin has been a “seller’s market” for well over a decade due to consistent, continuing job growth and population growth. When you have ratios of 2-3 buyers for every 1 seller, that ratio doesn’t flip overnight. Instead, it gets chipped away at slowly. It might go down to 2.1 or, say, 1.9 buyers per seller… but I see Austin staying “a seller’s market” for many more years to come, if for no other reason, merely because of the dramatic disequilibrium that we’ve accumulated. So what does a seller’s market mean in general? It means prices/home values appreciate. Indeed a seller’s market makes it more difficult for many people to buy a home, but once you’re already a homeowner, it’s nice to see your equity and net worth growing each year. It’s especially nice when it’s finally time to sell and cash out! For these reasons, I remain very bullish on the Austin market for the foreseeable future. If you have the financial ability to be involved, I would recommend getting in. If you’re already in and have the ability to wait out our current downturn/plateau, I think in the end your wallet will be rewarded for your patience as well. Photo by CDC on Unsplash
Comparison: Solar Panel Systems
Solar panels are a big part of the homeowners equation for many people. We recently put solar on our roof, and I thought I’d share our research with you to make it a little easier if you decide to jump in yourself. First of all, just note that they’re usually only going to put panels on a south-facing roof. If your south-facing roof is completely shaded, it probably won’t work out. Also, the city of Austin will only grant permits for 110% of your estimated yearly usage, and no more. We went ahead and pursued that amount because we have a lot of energy needs with two electric cars, electic hvac system, charging my bionic body, etc. Unless you have a storage system, you give what power you produce back to the grid and Austin credits you over a year’s time. If we have extra electricity left over/more produced than we use, then maybe we can come up with some creative ways to use it like… mining bitcoin or running a 3D printer. 🙂 In any event, getting these solar panels seemed like a no brainer for us because the payments were a little better than the electric bills from the very beginning, and the savings only expound as years go by and electricty costs increase. What’s more, on top of state and national tax credits, the city of Austin GAVE us $3500 for installing them! We priced a lot of different companies and never thought about pricing Tesla Solar (previously Solar City, also co-founded by Elon Musk). I had heard they were not cheap, and had assumed that a premium sounding product like Tesla that would indeed be expensive, so we didn’t even price them. Finally at the very end someone prompted us to do so, and to our surprise they blew everybody else out of the water… by a long shot! A few common sense disclaimers: these are only the prices they gave me, at one snapshot in time. Times and places will change these numbers, although I assume the relative distance between each company will somewhat persist over time, at least in the short term. These numbers also do NOT include any government rebates or tax incentives. Note that each company will give you SO much information to wade through, and its very hard to do an “apples to apples” comparison. What makes the most sense, in my opinion, is to calculate what price per watt you’ll be paying. They won’t tell you this usually, so you’ll likely have to make a spreadsheet like I did. Honestly though, if you’re buying any time time in the future not too long after this blog post, it’s probably safe to say that Tesla will beat everyone else on price. I think they’ll also beat everyone else on aesthetics as well. They put trim pieces on the edge of the panels that make it more smoothly blend into the roof. It really makes a big difference on how it looks, and I don’t know if anybody else is doing that. It’s also no extra charge. Let me know if you have any questions and I’d be glad to share with you what I know or maybe help point you in the right direction.
Here’s our list of top Austin places to visit and things to do
South Congress– Great restaurants, shopping, and walk a little south to see the bats at the South Congress bridge (March through November and people start gathering around 5:30pm). Plan ahead and you can do a boat tour of the bats. (Side note: there’s a mass bat exodus in RR too, just off I-35 if you don’t want to go all the way to downtown.) Look north while on the Blvd and you’ll see a breath-taking view of our state Capitol. https://www.austintexas.org/listings/south-congress-avenue-(soco)/4359/ Capitol building– taller than DC’s, and quite ornate and impressive inside. Tours detailing the building and Texas history are available every day of the week.https://tspb.texas.gov/plan/tours/tours.html Zilker Park and Barton Springs Pool – A 358 acre park, just south of downtown. The pool is fed from underground springs with an average temperature of 68-70 degrees. If you wait too long in the day to go, the lines can be significant, although they move fast. http://www.austintexas.gov/department/barton-springs-pool 6th street– Lots of bars and music. The street is shut down on weekend nights and the street is filled with people, young and old. It’s always been a popular destination for Austin night life. Take a look at the Driskill Hotel, on the corner of 6th and Brazos. For more than a century, the Driskill has served up high-end Texas hospitality. https://driskillhotel.com/ Mount Bonnell– A very short hike, and perhaps the best view of the city of Austin, Austin’s wealth, and Lake Austin. https://www.austintexas.org/listings/mount-bonnell/2925/ Pennybacker Bridge (The 360 Bridge) – This bridge is perhaps our most iconic thing representing Austin. The homes are beautiful (and opulent) out that way as well. Lots to gawk at. The trail is short but rocky so be sure to wear good shoes and be sure to have your camera charged so you can take some amazing photos. https://www.austintexas.org/austin-insider-blog/post/360-bridge/ Domain– “Austin’s second downtown,” includes fancy stores (like Tiffany’s, Louis Vuitton, and Nieman Marcus), beautiful hotels (think Archer Hotel Austin and The Westin) and high-end restaurants as well as more relaxed venues such as Macy’s, Hopdoddy Burgers, and GAP. There is truly something for everyone here. https://www.simon.com/mall/the-domain Mueller- A more and more hip area of town with a great kids’ museum (The Thinkery) and great park for kids. This is a great place for families but I think the “grown up” fun might be better found elsewhere. http://www.muelleraustin.com/ North and South Lamar– Lots of funky local Austin type restaurants there too. A very popular street to live near. Goes straight through town and many find it a good route when avoiding highways. Guadalupe and “The Drag” – Some iconic restaurants and a funky, college feel if you’re driving around out of towners. A good place to start if you would like to see the University of Texas. https://en.wikipedia.org/wiki/Drag_(Austin,_Texas) Walnut Creek – HUMONGOUS with lots of great trails (approximately 7.3 miles). Also has the Walnut Creek Pool. http://www.austintexas.gov/page/walnut-creek-trail-system http://www.austintexas.gov/department/walnut-creek-pool Round Rock – One of the fastest growing cities in America. Settler’s park has great lights and recreation etc at Christmas time and it’s the home of the minor league baseball team, The Round Rock Express. Coming soon is Kalahari Falls! https://www.roundrocktexas.gov/ https://www.kalahariresorts.com/texas/ Hamilton Pool– Beautiful and a historic swimming hole with a gorgeous waterfall. It is 23 miles west of Austin. You need a reservation and be prepared for a rocky, steep hike. https://parks.traviscountytx.gov/parks/hamilton-pool-preserve Enchanted Rock– A much longer drive (96 miles), but still worth it if you ask me. My family goes out there maybe twice a year. Most beautiful and interesting hiking in our area, in my opinion. The drive there and back will also give you a good picture of what “Hill Country” really is. Depending on your route, lots of people stop in an old German town called Fredericksburg as well, a sort of bed and breakfast town with lots of novel stores and restaurants.https://tpwd.texas.gov/state-parks/enchanted-rock
Appraisal Addendum
In a seller’s market like this, it’s really common to see buyers willing to pay over appraised value as they’re tripping over themselves for the most prized properties. In these situations, for years now buyers and buyer agents have been looking for ways to formalize their creative offer structures that are attached to uncertain appraisal values. The lawyers that govern our process also did not like the fact that buyers, sellers, and real estate agents were all too close to “practicing law” as they wrote up these “if X happens then Y” type contingent offers…thus, the introduction of a new confusing form! Here’s the addendum for reference: https://www.trec.texas.gov/forms/addendum-concerning-right-terminate-due-lenders-appraisal #1 is straightforward. You pay what your offer says, period. There are no outs. No ifs, ands, or buts about anything. #2 and #3 say THE EXACT SAME THING. It’s just word play with negatives. So lets say Sussy is in a bidding war over a prized house. Say the list price is 350k, and her real estate agent showed her comps to suggest it may appraise for about 360k. If Sussy tells her agent “I want to bid aggressively. I’m willing to pay 10k over appraised price, but no more than 370k total.” You can use this new form to express this offer two different ways. You can check box #2 and write $360,000 in the blank or you could check box #3 and put $360,000 in the blank. Both accomplish the same thing!
Freakonomics: Are Real Estate Agents Selling You Short?
Although I’ve heard great things about it for years, I’m finally getting to go through Freakonomics. It unpacks so many interesting topics at the intersection of economics, culture, crime, and behavioral science. The chapter on “What do school teachers and sumo wrestlers have in common?” deals with how prevalent cheating is and the pervasive motivations to do so. “Why do drug dealers still live with their moms?” talks about how the crime world works as a business and what incentives motivate its participants. “Where have all the criminals gone?” unpacks how the legalization of abortion in the 60’s lead to the plummeting crime rates and societal trends of the 1990’s. “What makes a perfect parent” deals counter-intuitive findings on what really even affects our children, and “Would A Roshanda By Any Other Name Smell As Sweet” talks about how names are chosen and how they affect our lives. Perhaps the most pertinent topic to this blog though is the chapter titled “Are Real Estate Agents Selling You Short?” Wow… I feel like I have a sense of what many people think of realtors, but that title really paints the picture. 🙂 I like to talk about these things frankly instead of sweeping them under the rug though. Some colleagues might say, “why even suggest this book to people that might want to work with you? It’s better to just avoid it entirely and hope they never read it…” Again, though, that’s just not my style. Check out Freakonomics if you have the time. It’s a great read. In a nutshell, this chapter about realtors can be boiled down to two points I think. 1) The incentives for helping a client to earn just a few thousand dollars more does not properly align with the realtors own incentives, and 2) realtors usually do a better job at selling their own homes than they do for their clients. Unpacking the first point they make, they lay out stats that suggest that realtors often cajole their clients to go ahead to accept an offer for say, $5000 less than what the seller could have accepted otherwise because this price difference would end up making only $100 or less difference to the realtor’s pocket. They argue that the sellers’ and the realtors’ incentives are not properly aligned in these situations. While I’d love to see wider data than just those of the local areas they analyzed, I think I should start from the point of acknowledging that some of this is probably true. I HOPE I’ve never done this, but I should acknowledge that it’s possible. If you have any good ideas about how to get over this hurdle, I’d LOVE to hear your ideas. For my part, there are a few things I do to try to avoid this scenario. First, I try to constantly keep in mind that the next referral is how I profit from any extra small price gains I can get. Only a completely happy client will recommend me to someone else, therefore the continued monetary provision my family DEPENDS upon me making my clients absolutely happy. I’m thinking about my son, my daughter, and my wife. This transcends the extra $100 incentive they talk most about in the book. My perspective is that I’m in this for the long term, not the short sighted perspective of extra commission on this individual transaction. One big problem in the real estate industry is that there’s so much turn-over. A huge percentage of realtors are in and out of the profession within one year. They have perhaps heard from someone that it’s easy money, and very quickly learn that it’s not. Only a very small portion of talented, hardworking professionals are able to do well at it. Those “in-and-out” realtors do, however, end up getting a few transactions under their belt before they leave, and I would imagine their behavior in those transactions do indeed skew the macro level stats, as well as realtors reputation in general. Pertaining to the second point, that realtors do a better job at selling their own house… I’ll start by acknowledging that this is perhaps true as well, and for many of the reasons the book mentions. There are, however, probably some reasons that also make this trend a natural outcome. 1) Clients don’t always listen to realtor’s advice. No matter how much counsel we might give, in the end, much of the sale performance comes down to how well certain vision is executed. When a realtor sells their own house, there is little gap between “best practices” that are recommended and the “best practices” that are executed. 2) Non-realtors are more prone to want to over-price their home. An experienced realtor knows that a home priced AT or even slightly below market value is the home that will sell for the highest price in the end. Homes that are overpriced don’t provoke the same reactions, and don’t incite bidding wars as often. A realtor know that they’ve achieved the greatest success when buyers are tripping over each other to win the bid. I’d argue that non-realtors are more prone to price their home incorrectly. 3) Realtors are a little more emotionally detached during the process. I’ve seen many times where sellers are influenced by sentimental aspects of a buyer or their offer, whereas a realtor might not be if they were selling their own home. I’m not saying that this personal side to dealing with people is bad necessarily. I’m just saying that it doesn’t always get you the absolute best terms on your home. Since Freakonomics is comparing the sale price numbers realtors get on their own homes vs clients homes, I just think that this difference in emotionality is worth paying attention to. 4) Clients are often resistant to “depersonalizing” their home to the degree that “best practices” suggest. Lots of research shows that making colors and decorations neutral help. It also suggests taking out religious items, personalized clutter, etc are all things that help attract buyers to your home over others. When a home is overly personalized, it makes it difficult for the buyer to envision their own life in that place. Many seller’s knee jerk at this suggestion to depersonalize and think “why should I have to change who I am for these people?” While that’s valid, it’s just a difference of goals sometimes. Realtors are trying to influence a supply and demand graph, while a client is sometimes concerned with protecting their internal personal identity. Different goals lead to different outcomes, and I think the aggregate stats will bear out this effect. Also, it’s worth noting that not all markets are the same. Most people who move to Austin, I’ve found, have sort of an HGTV idea of how real estate works. Outside of Austin, that’s often true. That paradigm suggests that everybody prices their house at higher than they expect to get, and have a built in margin to negotiate the price down. Austin, however, has been a strong seller’s market for almost a decade. For quite some time the ratio of buyers to seller’s has been about 3X what a market in equilibrium would be. This means that seller’s are in the driver seat more often, and have a lot more ability to call the shots in the process. A very large percentage of homes sell for over list price (if priced right initially), and those that don’t usually sell for only 1-2% under list price. The idea that a buyer can come in and offer 10% or more off list price and get their offer accepted is just usually not realistic at all here. In Freakonomics they mention the Chicago market, among others. In many of those places I’m sure that “letting the home sit on the market longer” or “holding out for a better price later” might be a very valid strategy, but in Austin it’s often a bad one. What we see is that the homes that sell for the most, are homes that sell within the first week or two. The longer it sits, the more the potential final price drops. A good realtor here will usually try to sell quickly, not merely because they’re trying to get a quick paycheck, but rather because THEY KNOW from past experience that this is the way to get you (the seller) the best deal. Sitting and waiting longer usually does not result in a higher price, rather it more often results in getting stigmatized, followed by the downward spiral of price reductions. These differing market conditions from city to city make me wonder if some of the discoveries pointed out in Freakonomics are really equally valid everywhere, across the whole nation, in every city. Finally, I can’t end this without emphasizing that all realtors are not created equal. There are some bad realtors, and a ton of mediocre ones. Naturally the those agents all influence the macro stats we observe and analyze. Does the performance of the very best professionals share the same statistics? I’m inclined to say no, but I’ll keep myself open to new studies that may come along. In the very least, there is one easy practice which I’ve tried to integrate that I think perhaps sets me apart a little bit. I try to more often say “in this situation, I don’t absolutely know what will happen. I don’t have a crystal ball. Based on my experience, my colleagues’ experience, and the things I read, XYZ is what more often happens… but not always. In light of the whole game board laid out, as it is right now, I think if it were my own house, this is what I would do… but you are not me. 🙂 You are totally the boss here, and I just view my job as a provider of information, an adviser to the best of my ability.” I’d say usually when my suggestions are followed things turn out pretty well, but if I’m being honest I’d have to say that there are indeed past times when a client has acted contrary to my advice and things actually still worked out! 🙂 With so much uncertainty of human behavior, inherent to every home transaction, this is almost unavoidable. Game outcomes don’t follow deterministic rules, rather they follow probabilistic trends. While doing my job, I just have to be faithful and honest, and do the very best I can. If we ever get the chance to work together, I hope this is what’s needed to make you completely happy and satisfied with the whole process. If there are ways that we realtors can do our job better, I’d love to hear your thoughts!
One Resource Everyone Austin Buyer/Seller Needs
I want to make sure I put my absolute favorite resource into your hand. I send this to everyone, use it almost every week, and post an updated version every year. This gives you all of the information you need to see how the various areas around Austin are appreciating with information broken up by area and using data tracked over several years. All of this information will help you make a better informed decision before purchasing your piece of Austin real estate. You will notice that each of these areas can still be quite large, so if you’d like me to give you more specific data on an exact neighborhood that you’re interested in, please let me know and I’ll email you all the numbers and analysis relevant to that area. Also if you’d like to possess this PDF (with even more info than I’ve shown here), or have an questions, please let me know. Also, I should say hat’s off to Austin Title for putting this great presentation of the data together!
Real Estate FAQ’s, vol. 1
How long does it take to close on a house? Prior to TRID changes (which came down from Dodd Frank legistlation) that happened a few months ago, we could close most loans in 30 days after an offer is accepted. Now it typically takes 40-45 days to close. Although I don’t see it very often, I’m told that it is still actually possible to close in under 30 days if you have EVERYTHING your lender needs ready ahead of time, and never have any delays. Cash offers of course can close almost immediately, usually in under a week if both parties agree. How do realtors get paid? Realtors are paid nothing unless a house closes. While rates are negotiable by law, the compensation that has become the industry standard is that the seller pays a 3% commission to the buyer brokerage, and a 3% commission to the seller brokerage. If you are a buyer, you are in luck because you will not have to pay anything! Your realtor doesn’t get paid for showing houses, only if he or she helps you complete the task. How much do I have to pay as a down payment? This all depends upon what type of loan package you use. With FHA loans at least 3.5% is required, with conventional loans 5% is required, with USDA loans and VA loans you can put 0% down! Check with your lender as well about grant programs that can pay for ALL of your down payment. Taking these grants may increase your interest rate, but the down payment itself you is paid for, and you don’t have to pay that money back. How much will buyer closing costs be? ROUGHLY, it will be about 4% for buyers. This includes your pre-paids like insurance, taxes, and insurance but does NOT include your downpayment (which will be different depending upon your loan package and what you can afford). How much will seller closing costs be? Again, ROUGHLY, it will be a little under 7% (assuming 3% commissions paid to the buyer and seller brokerages). Every situation is going to be different, so ask your agent for a better estimate based on the actual house you want to buy. For the most accurate numbers, ask your lender for the actual closing costs.
The Truth About New Builds and Realtors
“I don’t need a realtor to go buy a new build home.” -This is actually true. The salesman at the model home can take you through the whole process without ever seeing a realtor. To me though, the questions isn’t whether or not it can be done or not, rather it’s whether or not you might have missed out on something. “They’ll negotiate a better deal with me if I don’t use a realtor.” -False, most likely. Seller’s never give you more than they have to, and who do you think they are more intimidated by: a realtor who does this stuff every week, or a novice who does this once every decade or two? I won’t guarantee you that the outcome will be different if you have a realtor, but I will say you’ve got better odds with a realtor. I’ve seen first hand my clients eyebrows perk up in disbelief while seeing the new build sales agent offer something that they weren’t previously offered when I wasn’t with them. I’ve seen my clients get things they wouldn’t have gotten without me. “The price is higher if I use a realtor.” -Totally false. First, the builders build in the realtor’s commission into the price of the house. If you ask, agents like me may be able to rebate part of their commission to you so that you MAKE money by using a realtor. If you don’t use a realtor, the realtor won’t make anything from your purchase, and neither will you. That’s just money that stays in the pockets of the builder. Who would you rather have that money, your family, and the family of your favorite realtor, or the million dollar salary executives of giant national corporations? Someone is going to get that money, and you get to choose. Also keep in mind that you’ll never have to pay your real estate buyer agent anything, ever, whether it be a new build or resale, since the seller always pays realtor commissions. “I can go shopping around all of the new build sales offices first, and then decide later if I want a realtor.” -Sometimes true, sometimes false. If you sign in without submitting your realtor’s name, you’re in danger of not being able to bring your realtor in on the deal later. Some builders will exclude them if you don’t tell them about your realtor from the outset. Some builders even require your realtor to be there on the first visit WITH you. In general, I’ve experienced D.R. Horton to be pretty accommodating and congenial to realtors, but I did notice this clause in my client’s contract last week: “D.R. Horton requires that you must accompany your client to the model homes on his or her first visit and register your client in the Subdivision at the time. D.R. Horton cannot and will not honor a “drive-by” agency relationship or any purported relationship attempted to be created by you sending your client to the model homes (or the Subdivision) with instructions to tell D.R. Horton’s Sales Representative that your client is working with or represented by you. Any attempt to effectuate any Agency relationship with D.R. Horton without your actual presence shall be null and void and of no effect whatsoever.” There are other builders that will have similar clauses. Now if you’ve already messed up, don’t worry too much. Just call to your favorite realtor, and don’t sign a contract until you’ve talked to them. Regardless of what their fine print says, your power to walk away and not buy may cause the builder to look the other way about their realtor policy, and include them per your request. Like I said, the realtor’s commission is already built into the price of the home from the outset, so they should be willing to pay it if it’s necessary to sell the home. “A realtor will just slow me down if I have to bring them along for my home shopping.” –If that’s true, I’d say you might not have the best realtor. A good realtor will be grateful for the chance to get to work with you, and will give you absolute first priority in their schedule. If they don’t, get another one! “The sales agent will be able to answer all my questions, so I don’t need a realtor.” -Sure, the sales agent probably knows their own product better than your realtor, but your own realtor knows more about YOUR needs, and therefore knows how to ask really relevant questions. Also, because of experience, your own realtor also might have an idea of what weaknesses they might be hiding (or not proactively showing you) about their own product. Just remember than builders will ALWAYS only tell you about how their product is the best. Your (good) realtor has been through this dog and pony show a million times though, and knows better. I think many people find that their realtors bring really insightful questions and point out things that wouldn’t have been revealed otherwise. If there are any questions I can answer for you, or help guide you through the new build process, please don’t hesitate to contact me.
Your “All In” Austin Realtor
This post was written primarily to introduce myself to realtors in other cities, who have clients moving to Austin. If, however, you’re a buyer or seller already in Austin and are looking for a realtor, then I hope this post can at least be useful in learning a little more about me. What are you looking for in a realtor partner? I suppose everyone has different things on their checklist. I’ll share mine, and then I’d love to hear you share yours. When I need a realtor in another city of course one of my primary concerns is to see if they know what they’re doing. Many years of experience is great, but of even more importance to me is recent experience. Markets are changing all the time, and someone who had a pulse on the market ten years ago might not have a great pulse on the market at the moment. Aside experience and market knowledge, my second biggest concern is accessibility. If I can’t get a call back from the realtor I reach out to, I begin to wonder if my referred client will have trouble as well. If I really want to help insure my referred client can successfully win a house, they will need to be able to get a hold of their realtor. I know not all markets are like Austin, but here the best priced houses are here today and gone tomorrow, many often having multiple offers in just one or two days on the market. Just incase that other city’s market is similar to red-hot Austin, I want my client to have a really responsive realtor. A third thing I’m often looking for is a realtor that is “all in.” I know there are certainly lots of good part-time realtors out there, but I feel better about those who have all of their work time available to devote to real estate. Maybe my bias is unfounded, but if my referred client could only get showings on nights and weekends, or between other occupational appointments, things might be much more difficult. If my checklist items are anything like what you’re looking for, then let me tell you a little about myself. I’m not trying to toot my own horn, I’m applying for a job! In about the past half year I’ve sold or put more than 34 houses under contract, sold property in more than a dozen zip codes, transacted new builds and resales, and have probably shown close to a thousand houses all over the greater Austin area. I’ve been in more competitive bid situations this past year that I can even count, seemingly almost every week. I feel like I have a pretty good beat on Austin’s current market pulse. With seven realtors or brokers in the family, real estate has just become part of our family culture. I first got my license back in 2003, but although I have been involved in different businesses and entrepreneurship over the years, real estate client assistance has been my sole focus for some time now. I’m a FULL TIME realtor, and I’m “all in!” I’d love to be “all in” for your clients as well. Finally, I have a personality trait that can be helpful you. I have a natural sense of urgency about most things, which conveniently fits this fast paced market. When something needs to get done, my philosophy is that there’s no time like the present. Whats more, I have a stellar team to back me up, one that I probably don’t talk about enough. I have an amazing assistant, who is also an experienced licensed realtor. I also have a transaction coordinator, as well as another buyer specialist agent to help out. In the next month or two, we may also be adding another one or two buyers specialists as well. Sure, there will be times where I can’t be immediately available, but on my team there’s almost always someone you can talk to. Give me a call, text, or email today and feel free to give me your most difficult interview questions. I’d love to give your clients a great home buying experience here in Austin.
Texas Favors Buyers: Understanding The Option Period
If you went to any type of investment market (say stocks, bonds, etc.) and asked if you could lock in the current price and take it off the market for 10 days before you decided for sure that you wanted to buy it, and in exchange for this option to buy you would give them $150, what do you think they would say? My guess is something like: “You’re crazy! Get out of here!” Texas, however, has a similar sort of arrangement for homebuyers, which, in my opinion, is ridiculously slanted in favor of buyers. Everything is negotiable, but I usually try to push for 10-day option periods for my buyers. Occasionally during competitive situations this gets pushed down to 7 days. I usually push for about $150 as an option payment, but sometimes this can get pushed up to as much as $300, or a little more depending on the property price and competition. Still, for this very nominal fee, if they accept your offer, you get this entire 7-10 day option period to drop out for ANY reason whatsoever. If you drop out, all you’ll lose is that small fee. After I explain this, some people still think there’s a catch. There’s not! If you’re in a bad mood, if you’d like to take a vacation, if you think the stars are not in the right alignment … really, anything, is reason enough to drop out. You don’t even have to give a reason. Since often the only thing at risk is about $150, if you really like a house there’s usually not a lot of reason not to jump in. You can worry about cold feet later after you win the bid. Now the function of the option period is really to let you do your due diligence. We will help you schedule inspections, which will tell you every dirty detail about a house and everything that might conceivably need repairs. Because you have the ability to drop out of the contract, you also have a little bit of leverage, and therefore the option period is also a second chance to negotiate repairs or monetary allowances to do those repairs on your own. After midnight on the last day of your option period though, the window closes and you’re on the hook to complete the contract. Until then though, you get to find out everything about the house, and rethink your whole game plan. This feature of Texas real estate contract law makes it much easier to jump in if you like a property but are not 100% sure about everything yet. When you go under contract, there is also an earnest money payment, which is usually negotiated to go toward closing costs, so it’s a payment you basically get back in the end. I can elaborate on this a little more in a future post. Please let us know if there are any questions you might have, or any ways we can help you out with the whole home buying process.
Never Lose Another Bid!
I’m taking a little risk in writing this, giving away some trade secrets for free. My assumption though is that mostly only my own clients and friends are the ones reading this blog, and a limited amount of other realtors (the competition). Honestly, I don’t know why all realtors don’t know and use this trick (as basic as it is), but I have observed that many don’t…request So if you find yourself in a multiple offer situation (which is quite common in Austin), then how do you win? I’m often asked, “how much do you think the other parties will be bidding?” I don’t have a crystal ball, and I honestly have no idea how much other people want the house or how deep their pockets are. At lower price points, I typically don’t see the bidding go more than 5% over listing price. At higher price points it’s often confined to 2-3%… but still, these are generalizations. Any realtor that tells you they know what will happen is not being honest with you. So how do you ensure that you’ll almost certainly win the bid? Well, you can just WAY overbid and blow everybody else out of the water! “Really Jeremy? THAT’S your advice?!” Well, if you’re using a lender to finance your offer, an appropriately written contract should specify that the deal is dependent upon your loan approval, which is also dependent upon your house appraising at full contract value. Basically that means that the government has ensured that you NEVER have to pay a single penny over appraised value if you don’t want to! That means that as long as you are willing to pay the full appraised value (which is typically synonymous with “market value” because appraisers are the best at what they do), then you can bid basically any high number and then just wait for the appraisal to come in. If you’re not sure what others will bid, then just WAY over bid them, win the bid, and then wait for the appraisal to bring the price back down after everybody else has been defeated. Q: But wait Jeremy, do the sellers HAVE TO agree to lower the price if the appraisal comes in low? A: No, but they are not really left with any other good options at that point in the game. In the event of a low appraisal, you have the ability to drop out of the contract at that point, and if they let you walk away they’ll have to put their back on the market. If they try to promote their house to other buyers, they will run into the exact same problem all over again. That appraisal will still be on file for the next guys to see, and those people won’t want to pay over appraised value either. Nobody wants to start out with negative equity from day one, and very few people want to bring extra cash beyond what their loan will finance. So far, every single time I’ve had an appraisal come in low, we brought a price lowering ammendment to the seller and they’ve always agreed. Most likely their own realtor will be telling them the exact same thing, that they have no good options at that point. So is this a little confusing? Here’s a fictional scenario to show you how it plays out in the real world. The Jones want to by 103 Brown St which is listed at $250,000. Unfortunately this house was marketed well and 4 other people have also submitted offers. Even though there’s a bidding war, likely most of the other bids will not be more than $260,000. I’d say it”s much more unlikely for the other bidders to bid more than $265,000. To be safe, let’s say I help the Jones bid $267,000 because they really want the house. Lets also say that I’ve run the comps for them to help them know the house’s real market value, and we’ve assessed it to be priced right in the ballpark of $250,000. Let’s then say that our $267,000 bid is accepted and we go under contract for the house. Most likely the other parties will not want to place backup offers because that ties them up and in some ways keeps them from shopping for houses elsewhere. Since we’re under contract, the Jones’ lender orders an appraisal, which will probably occur 2 weeks or more after the offer is accepted. At that time, let’s say that the appraisal value comes in at $252,000. What do we do next? We then tell the sellers about the appraised value and write an ammendment to bring the price down to $252,000. Unless they are just stubborn or unreasonable, the sellers will most likely come down to our requested price. Do you see what has happened here though? You will end up getting the house for $252,000 but if you had bid that originally you would almost certainly not have won. It’s a bit of gamesmanship here, but it works! When I’m trying to get the best deal for my clients I’m willing to play a few games, and I think they end up appreciating it too. Now what are the holes in this strategy? Cash buyers! Cash buyers don’t have to even have an appraisal done. Even if they did want to purchase one, there is no normal contract clause that gives them to right to drop out if the home doesn’t appraise. In this respect, cash buyers are taking a higher risk, and are willing to overspend when necessary. Often it’s just difficult to compete with them. Sellers will usually favor cash offers in multiple offer situations, and if the bidding gets really crazy the sellers will KNOW that their house will not appraise for such a high amount. In that situation, even if the cash buyer is not the highest bid, the sellers will still chose them because they believe the cash buyer will ensure the highest amount of money in the end. Cash buyers are more common for lower priced properties, and more prevalent in Austin proper. The closer you get to down town and the lower the price, the greater the occurrence of these cash buyers. This is just my observation. The good news is that in the suburbs, and in higher priced areas, you will rarely see cash buyers in the bidding war. Things have slowed down substantially since the summer time as well, so even in Austin proper the rate of cash buyers in offers seems to me to be decreasing. Want one more way to float to the top of a bidding war? Have you ever heard of love letters? I’ll talk about this more in a future blog post, but it’s basically just a personal introduction of yourself, attempting to pluck as many heart strings as possible with the seller. It’s amazing how a love letter can determine who wins a tie, or who the seller chooses to counter-offer (even if their original bid wasn’t the highest). Cute family pictures help as well. Feel free to ask me more questions about any of these things and I’d be glad to help.
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