future of real estate

What would it take to crash the real estate market?

by John Rice

A lot of people subscribe to the “What goes up must come down” theory on markets. I don’t. I tend to just use that one when describing gravity.

For real estate, we have only really ever had prices go down twice in the history of tracking such stuff. Once was the Depression which caused ALL markets to go down, and the other was the Great Recession which was largely caused by bad mortgages that were toxic to the stock market. Neither time actually had anything to do with just the real estate market.

Today’s market is probably the healthiest it’s been in a long time. Prices are high due to supply and demand. Sure, low interest rates help but not as much as you would think. People acclimate to interest rates. I remember bragging about getting 6.625% on my first home when all my homeowning friends were over 7%.

When people on Youtube or those who write for the news look at the real estate market, they tend to not look at the whole picture. I am sure you have seen headlines about how all the people in mortgage forbearance would crash the market once they got foreclosed. Didn’t happen. All those people who needed to sell had enough equity to sell and avoid foreclosure. What about all the Baby Boomers who would leave a huge void in the real estate market as they sold their homes and went into retirement homes or to reside on the other side of the Pearly Gates? No mention of the youngest generation of buyers entering the market who would keep the wheels of the whole market greased so everybody can move. Years ago I described this like a baseball game where the bases are loaded. The Player on 1st base wants to run to 2nd. The Player on 2nd base wants to run to 3rd. The Player on 3rd wants to run home. What needs to happen in order to keep all those Players moving? For the Batter to hit a home run. The first time buyers are the most crucial element of the market. Without them, no homeowner can part with their old house in order to move up to their next one.

Everybody knows how Supply and Demand works, right? Let’s apply it to real estate. Most people involved in selling or buying will be doing both. Most sellers are also buying. Most buyers are also selling. That means there is no net gain or loss in the supply/demand ratio regardless of the market. This is why the supply/demand ratio got so bad during the Great Recession-You had so many foreclosures where the previous owner did not reenter the market as a buyer. Other than in such catastrophic times, the only people who are doing one side of a sale are first time buyers or those who have passed away or are going into some form of assisted living. Historically there have been more first time buyers than there are those who are exiting the market permanently. (I am excluding those well off enough to purchase second homes since that is a smaller market and we are not in a big area for that like Florida or any other vacation destination.)

So then, what would it take to tank the real estate market if it has nothing to do with real estate? It would take something terrible to happen with the economy…..meaning something bigger and broader than just the real estate market that is like a Tsunami and wipes out everything in it’s path. Let’s hope that doesn’t happen any time soon!

What is being a realtor really about?

by John Rice

You’d think it would be about houses, but it is not.

You’d think it would be about the market, but it is not.

You’d think it would be about knowing what a house is worth, but it is not.

You would think it would be about marketing a property for sale, but it is not.

You would think it would be about showing houses to buyers, but it’s not that either.

All of these things are important, but they are not what being a realtor is really about.

It is about guiding people to make a good decision using all of the things above. I often describe my job, when asked, as “Talking people into making a good decision and talking them out of making a bad one.”

In the future, realtors might not even be needed for a buyer to view a house. People may end buying real estate like they do anything else online, or there will be an app to open the lockbox on the front door without a realtor. In the future one of two things will happen: Technology will make tools like Zillow’s Zestimate more accurate, or people will broadly accept them as being accurate. Either way, realtors won’t be needed to determine market value.

It all comes down to helping people make a good decision. There are tons of tiny decisions in buying or selling a house that can have huge consequences. Money can be lost. Time can be wasted. Stress can be compounded. Since most people only buy or sell a house a few times in their lives, often they don’t know the difference between a good decision and a better one. It is easy to make a good verses bad decision. Good verses better requires some knowledge and experience.

A realtor friend and I often chat about what we having going on. It makes us both better realtors I think. He had a situation where he had two offers on a listing. One was slightly better than the other, but the people with the slightly worse offer really wanted to live in that specific neighborhood. Do you go with more money and risk losing those buyers if the home inspection didn’t go well? Do you go with the slightly less offer where you know the buyer is less likely to walk away because they have to have that specific neighborhood? I told my friend to go with the higher offer. My thinking was that if the higher offer people walked away after the inspection, which is usually within 10 days, the other buyers who wanted that specific neighborhood will still be around. Best of both worlds.

Since the market is so hot right now, I am seeing lots of sellers saying a neighbor or a somebody they know is interested in buying their house before it gets listed. My advice to anybody today is to put the house on the market and try to get at least two offers. Today’s buyers are used to fighting to get a house. Get two or more buyers competing for a house and YOU as the seller will always come out the winner. Also, a buyer wanting your house because their parents or grown children live on the street will ALWAYS be there too. That buyer is not just looking for any house in your price range. Being close to mom, dad, grandma, grandpa or grandkids is what makes them want your house. They may or may not pay the most for it, but they are not out actively looking for any house in your price range all over town.

Another thing I am seeing more of is the opposite end of this where a buyer thanks me for my time and tells me they have bought a house from a friend. I had somebody this year with a friend who was selling their house by owner. My client bought it. The house had been on the market for quite a while. In today’s hot market, not selling fast is a sure sign that something is wrong. When buyers decide to wait for the next new listing and pass on your house, can you imagine how difficult it will be to sell the house in a cooler market? This is where the whole good verses better decision starts to have big consequences. People who make poor choices as a buyer typically don’t realize they made a poor choice until they go to sell the house. I saw plenty of that from Great Recession sellers who told me they went over the asking price in multiple offers when they bought the house that they were now selling for less that they owed on it.

So, being a realtor is really about using your experience and knowledge to help people make the best decisions possible. There is nothing that feels better than knowing your seller got the best deal possible, or that your buyer landed a house that will always be easy to sell when that time comes.

How COVID will affect what people want in a home

by John Rice

It won’t change a thing.

I don’t know about you, but all the news I have been reading is saying buyer’s wants have shifted due to quarantining. They say people are wanting a place to work from home, wanting bigger houses, wanting great outdoor spaces, and a less open floor plan.

I personally think that writers of such stories don’t know much about real estate and just have to write something because that is their job.

When have people not wanted a bigger house? When have they not wanted a better backyard? When have they not wanted a home office? Okay, the wanting a less open floor plan is something that has been emerging for the past few years but isn’t really possible in a smaller house. To do a less open floor plan you need a big enough house so it doesn’t feel like you have a bunch of super small rooms. People may covet these features a little more right now, but it definitely is not a new trend in housing.

I think the biggest effect COVID has had on what people want in a home is simple……..to just find one they like, pay at least the full list price, possibly waive inspections, and take advantage of incredibly low interest rates. Beyond that, the buyers of average priced homes are not all that picky.

Will Realtors be replaced with an app?

by John Rice

Yes, they could.

The app would need to be able to tell a seller that their house has a pet odor and that is what is keeping it from selling.

The app would need to tell a seller to rearrange their furniture because it currently make the living room look very small compared to other houses for sale in it’s price range.

The app would need to tell a buyer the house they want is worth less than other houses in the neighborhood that are the same size due to an unusual floor plan.

The app would need to be able to tell a buyer when the home inspection repair list is big enough to walk away from the house.

All this app would need is a way to download all the experience that only comes from being out there, seeing houses, writing offers, knowing the current market, and dealing with people.

So no, Realtors are here to stay.

I sold a listing of mine that did not inspect so well.  Before we put it back on the market, we have to make some repairs.  I have spent a lot of time advising my client on which repairs we need to do so that the next buyer won’t want to walk away.  We don’t want to fix everything little thing because we don’t have to do so.  The goal is just to do the big things so the next buyer still wants the house after their inspection.

I recently had a standoff with a listing agent when their seller did not do a few repairs they agreed to do.  The listing agent drew a line in the sand and told me my people had to take it or leave it.  Knowing that the seller had moved out of the house and was closing on his new house the next morning, I called his bluff by saying we would postpone the closing and go to mediation since that is how the contract says disputes are to be settled.  A couple of hours later he was asking me what my buyer wanted to have done in order to close on time.

An app can’t do these things.  An app can open doors.  An app can provide paperwork to be filled out.  An app can’t solve these types of problems.  People are always going to want help from somebody who knows what to do, how to do it, and when to do it.