TEAM EMPOWERMENT MORTGAGE CHATTER: Oct 25; Don’t Sell Yourself Short on Real Estate Commission; Housing Affordability: Price to Income; Tips for Short Sale Success; Bargains Around: What are Buyers Waiting for?; Foreclosures Cause Wave of Poor Health

“When you develop yourself to the point where your belief in yourself is so strong that you know you can accomplish anything you put your mind to, your future will be unlimited.” – Brian Tracy

DON’T SELL YOURSELF SHORT ON REAL ESTATE COMMISSION

You have a client who will be buying a house from you and will also list his house with you once he closes on the new property. Your client is from another part of the world where price is always negotiated. He asks you to cut your commission on his listing — what do you do?

As a rule of thumb, when someone asks you to lower your commission on a listing appointment, it means that you haven’t demonstrated your value or that they are part of the 15 percent of all sellers who care only about price.

(Five percent of sellers want premium service and the remaining 80 percent normally can be persuaded to list at a full commission when shown how it benefits them to do so.)

The root of the problem is that most consumers view real estate agents as a commodity. In other words, if all tomatoes are alike, why not buy the cheapest?

An excellent way to distinguish your services from competitors is to create a Premium Marketing Plan that outlines what all agents do, what your firm does, and what you do specifically to help the seller obtain the highest possible price for their property in the shortest amount of time.

The strategy is to take the initiative and to outline the premium services that you will provide prior to discussing the price. When the sellers ask you to lower your commission, you can respond by saying:

“This is my ‘Premium Marketing Plan,’ which will provide maximum exposure to the marketplace that results in the highest possible price for you in the shortest amount of time. If you would like to lower the commission, I’ll be happy to refer you to an agent who provides limited service.”

Notice that I didn’t use the word “discount” because “discounts” are perceived as a positive. Everyone likes receiving a discount but virtually no one wants “limited service.”

But what about the client who is doing more than one transaction with you — is it reasonable to perhaps give him a break, especially since negotiating the price is a core part of his culture? This was the question that was posed by one of our private coaching clients. Byron Van Arsdale came up with a unique approach to address the problem.

Rather than relying on a script such as, “If I can’t even negotiate a full commission for myself, how effective do you think I will be in helping you negotiate the highest possible price for your property?” he took an entirely different approach.

1. Play the client’s game

If you’re dealing with someone who wants to negotiate your commission and this is part of their culture, then beat them to the punch by negotiating with them about what they will do to make sure their property sells.

As the listing agent you control the marketing of the property. The seller controls the price, the access, the condition, and the accessibility for showings. Each of these is a point to be negotiated. Before you ever consider lowering your commission, the seller must meet your requirements.

Those requirements include:

  • the property is listed where it will sell and where it will appraise based upon closed comparable sales;
  • the seller must stage the property so it shows to its best advantage;
  • all the repairs you ask the seller to make are addressed prior to listing the property; and
  • the property is easy to show.

If the seller fails to meet any of these criteria, then there’s no point in discussing your commission — you don’t want the listing, especially when you’re not going to receive a full commission.

2. What are your standards?

How do you feel when someone doesn’t see your value? Usually it’s pretty disheartening. In the case described above, the agent wasn’t feeling that the seller valued her or the work that she does.

If she feels this way before she lists the property, there is a high probability that this feeling will only grow as she works with this person. Furthermore, he had already made several representations to her that weren’t correct.

Her sense of discomfort was actually much more than the issue about the commission — it was a sense that she couldn’t trust this person.

Ultimately, only you can decide the right course of action in any commission situation. Before you cave on your commission, however, make sure that you have offered a unique Premium Marketing Plan; that you have obtained commitments from the sellers about what they will do in terms of price, accessibility, and making necessary repairs; and that the integrity of these sellers is in alignment with your integrity.

Are you being hammered by clients going online to find a buyer’s agent based upon the offer of a reduced commission?

HOUSING AFFORDABILITY: PRICE TO INCOME

The Research

The resale of existing homes fell 3 percent in September according to the National Association of Realtors.[i] A new wave of foreclosures is scheduled to hit the U.S. housing markets.[ii] Homeownership levels experienced their largest decline since the Great Depression.[iii] Is there any good news about housing? Are there any signs of life in the U.S. property markets?

In fact, there are significant signs that favor a recovery in many markets around the country. Beracha et al. (2011)[iv] reports that housing affordability is at record levels in most of the country.

The study examines housing affordability from a number of different vantage points. The first investigation by the researchers is into the relationship between property prices and average income on a state-by-state basis and the country as a whole. In general, lower ratios (Price/Income) indicate better property affordability. For example, the average affordability score for Florida over the last 30 years is 4.51. In other words, a typical home in Florida has sold for 4.51 times the average annual per capita income in the state over the last 30 years. Today, the property price-to-per capita income ratio in Florida is 3.66, which is a 30-year low. Thus, housing today is more affordable in Florida based on income than at any time in the last 30 years.

This is not just happening in Florida. In fact, 26 states and the country as a whole stand at record levels of property affordability based on this ratio. The 30-year average property price-to-per capita income in the U.S. is 4.45; however, the present measure stands at only 3.94, meaning that, on average, Americans presently purchase homes for roughly four times their annual income. Thus, on the whole and based on income, housing is more affordable today than at any time in the last 30 years.

Implications

The ratio of property price-to-per capita income is a traditional measure of housing affordability. There are issues with the measure. For example, property may not be becoming more affordable, as Americans might be buying lesser quality homes, which would cause the ratio to drop for reasons other than affordability. Historically, however, this has not been the case. Thus, the measure is a proxy for the health of the market place.

As a proxy for market health, these numbers are very encouraging. Clearly, property prices are falling far faster than income (in fact, income has remained relatively stable over the period), making housing more affordable than in recent memory.

Will these record levels of affordability based on income be the engine to reignite housing markets around the country? Only time will tell. Regardless, there do appear to be signs of life in the U.S. housing markets.

Endnotes

[i] CNBC, http://www.cnbc.com//id/44973943

[ii] Reuters, http://in.reuters.com/article/2011/10/13/idINN1E79C25020111013

[iii] CNN Money, http://money.cnn.com/2011/10/07/real_estate/home_ownership/index.htm

[iv] Beracha, E., H. Skiba, M. Hirschey, and K.H. Johnson. Ongoing Research. (Fall 2011).

TIPS FOR SHORT SALE SUCCESS: DO NOT FORGET THE BUYER

Short sale success does not stop at educating the seller as to their loss of mitigation options and then successfully negotiating with the seller’s bank to accept a short payoff. Today’s complex real estate market warrants more. Having negotiated over 1000 successful short sales, we have found one aspect of the short sale process that needs serious attention: Educating the buyer regarding the proper short sale procedures.

Educating the buyer and setting the correct expectations is imperative to a successful short sale transaction. Nothing is more discouraging than successfully negotiating a short sale only to have the buyers walk from or not be able to close the transaction. The following are some precautionary and educational items to consider which would avoid such buyer fallout.

Patience is a Virtue

Not every buyer is a short sale buyer. However, one important characteristic a short sale buyer must have is patience. Setting the proper expectations regarding the time frame of a short sale plays a key role in bringing the short sale to the closing table. If a buyer is not willing to stay in the transaction for at least 90 days, they are not a short sale buyer. Of course we cannot speak for every circumstance. But, in most cases, the short sale process takes 60-90 days to complete. For their patience, the buyer will likely earn instant equity. The average short sale, according to the Realty Trac report dated 5/21/11, sells for 79 percent of market value. To that end, a buyer will earn “patience equity” (a term coined by Steve Harney).

Work with a Lender that Understands the Short Sale Process

The pre-approval process should be the same whether the buyer is being pre- approved to buy a short sale or pre-approved to buy a non-distressed property. This seems like simple advice doesn’t it? However, from our vast experience negotiating short sales, we have found that 35% of successfully negotiated short sales do not reach the closing table because the buyers financing falls through. We must educate buyers to work with the proper lender who will not only walk them through the mortgage process, but also understands the short sale process. Too many mortgage applications start at the time of short sale approval. Some short sale approvals expire in 10- 15 days from date of issue. In many cases, that is not enough time for a lender to underwrite the file, order title, order appraisal and fund the loan.

A proper pre-approved short sale buyer would be one who is brought through a complete underwriting analysis prior to the short sale offer. This includes full income analysis, full asset analysis and full credit analysis. The ideal lender is one who completes the underwriting procedure and has a credit decision pending clear title and appraisal. The lender should also help in keeping the buyer engaged throughout the process. In a lengthy short sale negotiation, the lender should be proactive in keeping the loan file up to date with recent paystubs, asset documentation etc. This will ensure the transaction closes on time and without extensions.

Complete Inspections Prior to the Short Sale Approval

This is a confrontational subject but each buyer should be educated to understand that in most cases any major deficiency regarding the condition of the property will not be cured prior to closing. However, in many instances, if the deficiencies are known prior to the start of the short sale negotiation, the short selling bank will be more willing to except a sale price that is discounted deeper to the current market value. It is a challenging task to go back to the bank and ask for a lower sales price when a home inspection that was done after short sale approval showed major deficiencies.

In addition to the home inspection, the lender appraisal can be done prior to the short sale approval. In most circumstances where the short selling bank’s broker price opinion shows a property value that is much higher than the buyer offer, the lender appraisal can be used to negotiate the value.

We should educate buyers as to the pros and cons of completing the inspections prior to short sale approval. We understand there is a monetary commitment that would have to be made. Having said that, having the inspections done can save allot of aggravation to the seller and buyer later in the process.

In closing, the above are just a few items to consider when educating the buyer regarding the proper short sale procedures. If we remember to keep the buyer engaged and walk them through the process every step of the way, we will ensure the buyer earns their “patience equitY” and the short sale transaction closes.

BARGAINS ABOUND: WHAT ARE BUYERS WAITING FOR?

With low home prices and ultra-low interest rates, the housing market is offering “perhaps the best deals of a generation,” notes a recent article by Bloomberg Businessweek.

Since the housing boom of 2006, home prices have fallen about 31 percent. Also, mortgage rates have been hovering at record lows for the past few weeks (4 percent range or even lower on 30-year fixed-rate mortgages, according to Freddie Mac’s mortgage market survey).

“It’s hard to see the possibility of losing on a home purchase right now, with these mortgage rates,” says economist Dean Baker. “Prices may go lower, but not by much.”

The article notes the following scenario: Buying a $300,000 home with a 4 percent mortgage rate and a 20 percent down payment would mean a $1,145 monthly payment. The Mortgage Bankers Association recently predicted that home prices may fall another 3.5 percent by mid-2012 but mortgage rates will increase by a half-point. So for that same loan under that scenario, a home would sell for $289,000 while the monthly mortgage bill would be $1,171–only a $26 difference.

For those who can qualify for a mortgage, “playing the waiting game” won’t result in much gain, Nariman Behravesh, chief economist at IHS in Englewood, Colo., told Bloomberg Businessweek.

FORECLOSURES CAUSE WAVE OF POOR HEALTH, STUDY SAYS

More studies are pointing to how foreclosures can hurt home owner’s health.

In the most recent study, home owners aged 50 and older who were unable to make their mortgage payments were found to have high rates of depression and a “higher likelihood of making unhealthy financial trade offs regarding food and needed prescription drugs,” according to the study, recently published inthe American Journal of Public Health.

Researchers found that nearly one-third of the home owners aged 50 or older who were delinquent on their mortgage reported fair or poor health, compared to 19 percent who were not delinquent.

“More than a quarter of people in mortgage default or foreclosure are over 50,” says Dawn E. Alley, the study’s principle investigator. “For an older person with chronic conditions like diabetes or hypertension, the types of health problems we saw are short-term consequences of falling behind on a mortgage that could have long-run implications for that person’s health.”

An earlier study released this year, conducted by Princeton University and Georgia State University researchers, found that the higher the foreclosure rates, the more risks to your community’s health. Researchers had found that a higher number of foreclosures in Arizona, California, Florida, and New Jersey were found to coincide with a rise of stress-related health problems in those states, including an increase in the number of hospital visits for preventable conditions and increase in emergency room visits and hospitalizations for hypertension.

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