The Last Straw, Inflation

After nearly a dozen increases in cost of funds by the Federal Reserve, and Alan Greenspan the past 20 months, inflation raises its ugly head. The cost of energy, and the impact of 2 devastating hurricanes are driving prices up. That includes 30 year mortgage rates which have settled above 6% for 2 weeks in a row for the first time this year.

With the latest report of core inflation increasing there is no doubt the Fed will continue increasing short term rates through the end of the year. Could this be the straw that breaks the back of the housing boom? I believe so.

Let's look at the previous straws placed upon the back of the real estate market. Three consecutive years of record sales. The largest number of homeowners in history. This adds up to satisfied demand. Can anyone please tell me where you can find a housing market that has pent up demand? Not counting flipping markets in Florida, Arizona, and the Left coast?

The impact of the Fed's rate increases hasn't impacted long term mortgage rates, yet. The impact has been on other household debt, such as credit card debt. This decreases the disposable income that could be put towards a home purchase. Add to the increased payments for retail debt, the cost of gasoline, and the predicted 30% to 50% increase in cost to heat a home for the winter, and it all adds up to severely diminish the disposable incomes of many a prospective home purchaser.

In some markets the tables are turning to favor buyers instead of the sellers. The Springfield IL. market is a good example. While sales of homes are at record levels the past 3 years, sales are flat. Sales of homes in 2004 beat 2003 by a total of 5. That's right by 5, of 3660 closed home sales. This year is barely 2% ahead of 2004 YTD.

While sales are flat the same is not true for the number of homes for sale, up a whopping 34% from just 2 years ago October. At the current rate of sales, and the rate of new home listings, only 1 in 3 area home sellers will get sold before March 31, 2006. That is if we can maintain the record pace of (flat) sales.

It will probably take a long lonely winter for the unsuccessful home seller to realize the market has changed. These are the sellers that will see their sale price drop significantly due to time on the market combined with the diminishing numbers of buyers in the market with diminished purchasing power.

The first groups of sellers that will be impacted will be for sale by owners, those listed with limited service companies, and those listed with discount brokers. Their chances of selling will plummet with weakening demand and rising interest rates.

Home builders will be severely impacted because they have fixed costs in their homes, and don't have the luxury of a homeowner with built up equity. With dozens of builders spec homes sitting unsold, now for months in many cases, many builders will pull in their horns and return to contract building. Most builders will sit all winter paying their lender interest, rather than lowering the asking price and enhancing their chances for a sale this winter. If rates continue upward further diminishing the purchasing power, and the number of buyers in the market, many builders will suffer significant losses in the Spring.

Yes I believe the latest report on inflation will be the straw that breaks the back of the boom market, because Greenspan and the Fed will continue raising rates. Will the real estate market go bust? No. Sales will slow, and prices will drop as we return to normal market conditions. It will only seem like a bust, as the market returns to 'normal'. Normal sure will seem slow to many in the industry. At any rate, I sure enjoyed the ride. Good luck to you in your market.

ABC's 20/20 Boom or Bust Mostly a Bust

ABC's Boom or Bust 20/20 program Oct. 7th was a boom and a bust. The initial portion of the program reporting on real estate agents, limited services companies, commissions, and selling by owner was woefully short on content resulting in an unfounded bias against Realtors.

The example of a for sale by owner in New York City selling their home for significantly more money than what several Realtors said it was worth concluded that Realtors must be underpricing homes for quick sales to earn exorbitant commissions.

I had a differing conclusion; that the buyers overpaid for their home. Should interest rates increase, the economy soften, weakening demand, these buyers stand to lose a significant amount of money upon resale. In other words an uninformed buyer making a buying mistake. If home sellers can net more money selling on their own versus what a broker can net them; "Why not?". God bless our free economy.

What 20/20 did not disclose, if they would have investigated further, is that the vast majority of For Sale By Owners (Fsbos) are significantly overpriced. Unsuspecting buyers perceive by owner homes are better values because the seller isn't paying a fee, and that typically is not the case. Of all the Fsbo's I have called upon on behalf of buyer clients, most are overpriced. The majority of home sellers that call me to sell the home they purchased directly from an owner, paid too much at purchase and seldom recoup their investment at resale. Fsbo means to this professional; Buyer Beware.

As a licensed agent since 1987 with over 1600 sales during up, down, and level markets I can testify that Realtors underpricing homes is an exception to the rule, and not the rule. The vastly larger problem is commission driven agents telling home sellers high prices to obtain listings. This usually results in the home languishing on the market for extended periods of time, and ultimately selling far below what the seller could have obtained if priced fairly at the outset. Overpriced Realtor listings also cause unsuspecting buyers to overpay for their homes. Regardless of whether purchasing an overpriced home from an owner, or from a broker, this creates a financially precarious future for the buyer. Once again; Buyer Beware.

Regarding commissions; commissions have always been negotiable. In real estate brokerage as in any profession, you get what you pay for. My advice is to negotiate the price of products, not the cost of services, because services at half price are never the same as at full price. Discount brokers, and limited service companies sound good, however are modestly successful for the consumer, and usually only during boom markets.

The point 20/20 did not cover is that real estate agents and companies are not interchangeable. The consumer does not receive the same results due to limited service or discounted fees, as do consumers utilizing full service brokers. The consumer is best served by educating themselves on current market conditions before making a decision on how to sell their homes.

The amount of commission a consumer agrees to pay a broker should be based upon the services offered, the success record of the agent and company, and the price of the home being sold. Proven producers are worth more, and should earn more than ineffective agents and companies. After all; how much do you save if you don't sell?

The nationwide average sale price of a home has increased to over $220,000 during this boom market. The Springfield IL. average sale price has increased to $118,917 during the boom. The full service agent providing the most effective services cannot make a profit at a lower fee combined with a lower sales price.

The truth is that in the Midwest about 15% of sales in the boom have been by owner sales, including builders. Discount brokers have only accounted for about 8% of the sales in the Springfield market. Why? Less than 60% of home listings sell and close during their initial listing. It takes full service for most home sellers to succeed under these conditions.

20/20's statement/question; "Doesn't the internet make Realtors obsolete?", is not based in reality. Just because you can advertise a home for sale on the internet, does not diminish the value of the real estate agent in the transaction. The internet simply provides information. How does the consumer process this information into useful action during a real life purchase or sale of a home? Contracts, negotiations, price, deeds, encumbrances, liens, zoning, regulations, financing, disclosures, inspections, resale potential, appraisals, encroachment, covenants, and clouds on title are but a few parts of the real estate transaction that gets Fsbos and unrepresented buyers into trouble. The Realtor guides their clients through this modern day maze of real estate selling and buying.

I would suggest that if 20/20 wants to investigate a real world real estate story that they take a close look at internet companies such as LendingTree.com, HouseValues.com, JustListed.com, and third party relocation companies that receive referrals (kickbacks) from brokers for referring consumers, mostly consumers captured on their web sites .

If 20/20 believes commissions are too high, they should realize these types of companies add great cost to the transaction for doing very little if anything for the consumer. These companies usually work out referral arrangements with below average producing agents and companies. These agents and companies are eager to pay referral fees (kick backs) to these companies because they are barely getting by in the market, and need the business. This results in the consumer receiving below average service, limited success, and at a greater cost due to the referral (kickback) fees. Just as the perception by consumers that Fsbos are better values, these companies are not what they appear to be as well.

I invite 20/20 to Springfield IL. to learn the real story about real estate brokerage and the valuable service Realtors provide consumers. Come out to a historically stable real estate market that now is experiencing an over-supply of homes for sale that far exceeds the number of homes that will sell on average in the next six months. In markets like this home sellers will learn to appreciate the value of proven professionals, and will not be as concerned about fees, as they will be about getting sold. Springfield just might be a good example of what will occur in exuberant markets throughout the country in the near future.

The remainder of the Boom or Bust story was interesting and enjoyable. Someone should suggest that the bombs found in the Texas subdivision be dumped on the builder in South Carolina that apparently caused so much harm to a family through shoddy craftsmanship.

The bottom line is that full service brokerage is, and will be the only constant in the real estate market, as it has for over 100 years. Boom markets always bring out the discounter and opportunists. When the boom disappears, they will disappear. Consumers deserve to hear the whole story about real estate brokerage that will correct the unfounded bias against Realtors in the story by and from 20/20.

Home Seller Do's & Dont's

This first week of October there are actions home sellers can take to help them sell yet this year. First understand what you face in the market. The Capital Area Association of Realtors reports on Oct. 3rd 1525 homes that are listed for sale (a new record high), with hundreds more homes being offered by owner, or by builder. There's plenty of competition attempting to sell to the estimated 730 to 800 families that will purchase and close by the end of the year. What can you do as a home seller that will make your home one that sells?

If you are listed with a broker schedule a time to visit in person to review the brokers' marketing plan. What is your internet presentation? A single photo? Multiple still photos? A virtual tour? A floor plan of your home? All should be displayed or you will be at a competitive disadvantage against those who do. Seventy-five percent of all homebuyers shop on the internet. If you have an inferior presentation, your results will be inferior. Do multiple photos, floor plan, and virtual tour. Don't have just a single picture.

What type of print marketing is being employed? Do you have a full color brochure available on your yard sign with multiple photos of the interior, back yard, and a floor plan of the home? Two things about brochure boxes on signs; first empty boxes disappoint buyers, and secondly just one photo of the home is insufficient (as is black and white print). About twenty percent of homes are sold when a buyer sees a sign in the neighborhood where they want to buy. Do have full color multiple photo brochures with the floor plan stocked at all times on your yard sign. Don't have an empty box, no box, or inferior brochures.

Is your home advertised in a homes magazine? Once again, is there a color photo? An address? The price? Buyers will not give your home a second thought if your broker doesn't advertise both address and price. Don't worry about newspaper advertising, it's a dinosaur. If you are going to print advertise, more home buyers read homes magazines than newspapers and magazines have a longer shelf life, than the here today gone tomorrow newspapers. Did you notice circulation is down in newspapers, and even old stalwart such as the New York Times is laying off and downsizing? They can thank the internet for loss of readers, and for producing politically biased news for their decline. Do advertise price and address in a homes magazine. Don't waste your efforts on newspaper advertising, and if you do, don't leave out price and address.

The most important factor that will create a sale will be your review of the price of your home. With one in three listings to sell yet this year, the home that's priced the best for location and condition will be the winner. Try and make the market pay a price more than what competing homes are priced at and you won't sell until next Spring. Do review your price and adjust if necessary. Don't look at the competitons' prices, and the buyers won't give you a second look.

If you have already reviewed price and lowered your asking price, is your broker advertising on sign riders and in print; price reduced? Don't let them advertise price reduced! Price reduced indicates that you are a desperate seller, and invites low offers. Do have your broker call all agents that showed your home at a higher price to share the 'new' price. Don't advertise 'price reduced'.

Do make your home available for showing on short notice. There are fewer buyers in the market each day as we approach the end of the year. Don't miss any opportunity to show the home, it may be weeks before another showing.

Do clean your home, declutter, and create a sense of spaciousness. Don't leave your home unkempt, cluttered, and dark.

These are are practical tips about home selling do's and dont's. If you need to sell your home you can get more in depth advice about the home selling process by calling for a free Fritz Pfister "Home Sellers Guide" at 217-652-7653, or by making reservations to attend "The Home Sellers Seminar" hosted by Fritz Thursday November 10th at The Crowne Plaza Hotel in Springfield, IL. Beginning at 6:30pm. Over a thousand families have attended Fritz's seminars, hundreds have taken the information learned and succeeded in the market. Fritz's marketing systems have helped more families to sell their homes than any other agent or team in the local MLS since 2000, in fact 172 more!

If you need to sell your home we wish you well the next 6 months, while the buyer pool shrinks in the face of record numbers of homes for sale.