Say that 5 times real fast! Believe it or not, there once was a time when writing an offer “As Is” was relatively rare. Even in 2008 most offers I’ve seen and written are of the “As Is” variety. Most of the reason for this is because, in this area at least, sellers, for the most part, have taken on the responsibility of initiating pest and property inspections before putting their homes up for sale. Buyers can educate themselves about the subject property before writing an offer and can thereby make a decision as to whether or not the flaws and problems with the place are tolerable or workable to them. As you might have guessed…seller’s like to see an “As Is” offer.

Here’s the thing: “As Is” doesn’t always mean “As Is”…even though most sellers think it does. A buyer entering into an escrow with an “As Is” sale can still do further inspections on the subject property. If the further inspections turn up an issue not on the original disclosures, or in the sellers inspections, the buyers have the right to either change their minds about the purchase, or ask for the problem to be resolved by the seller. A few years ago, representing a buyer, I sold a house “As Is” where the seller had, mistakenly, not done a property inspection. We did one, and discovered a foot of standing water under the house. I recommended the buyers get an engineer to look at the house and he discovered some early stages of foundation problems that were developing as a result of the bad drainage. He gave us a bid of $25,000 to correct the problem. We gave the $25,000 bid to the seller…she paid it. Her alternative going forward (if my buyers backed out) would have been to now sell the house with both our property inspection and our engineer’s report and bid. Certainly that would have effected the home’s marketability and who knows how much longer it would have taken for her to get a new buyer.

I’ve seen this happen several times. If you’re a seller, always do inspections up front and know what’s going on with your home. If you’re a buyer with an “As Is” offer and you have some questions or concerns about some aspect of the home, don’t be afraid to do further inspections.

You know those terms…old news, extensive briefing, military inteligence. Nothing say’s Oxymoron to me quite like “understanding comparables”. For the uninitiated, a comparable from a real estate standpoint is a recently sold, local, similar property to the subject property. When someone wants to either buy of sell a property they will study the comparables to determine the correct value for it. Sellers study the comparables to determine a correct price with which to market their home, and buyers study the comps to determine the price that they will make an offer. Determing a correct price when listing a home is perhaps the hardest part of my job, paricularly in this market.  After almost 20 years I’m just getting kind of comfortable with it. It’s the biggest single reason to work with an experienced agent.

Last week I studied the values of a 2 bedroom condo in a Foster City project and discovered that there are no less than 4 two bedroom floor plans in the development. These are some of the factors that determine value there: whether it’s a first or second floor unit (second floor units have high ceilings), whether it’s on the east or west side of the project, what view it has, whether it has new carpet, paint, hardwood floors, laminate floors, new kitchens, new bathrooms, crown moldings, new appliances, granite counters, recessed lighting, a garage, proximity to the pool and total square footage…and any combination of any of these elements. Now this is only the factors within this particular project. In order to do this right it should be compared to other similar projects nearby, and now we’re looking at factors like HOA dues, total amount of greenbelt space, history of litigation, proximity to airplane noise, whether there’s any upcoming or current assessments and what geographical part of town it’s in.

Of course, we’ve only been talking about condos/townhouses, the same basic rules apply to single family houses as well…and Foster City is the easiest community in the Mid Peninsula to comp because there are so many recurring floorplans. Up until the last year it was relatively easy to price a home because the demand was so great almost all mistakes were irrelevant…the home sold anyway. In 2008 pricing mistakes are happening all the time. Agents and sellers price property based upon what their current active competition is priced at…and often they’re wrong too. In many cases a given floorplan hasn’t sold in 2 years or more, making it hard to price it today. Since the demand isn’t there to compensate for the errors we’re seeing price reductions on these homes. If a house is priced $50,000 to $100,000 over the comparable value and takes 1 or 2 price reductions before it sells it’s easy to assume that values have fallen. In fact they’ve fallen to a level they should have been at all along.

I think that by the end of 2008 we’ll see price erosion in Foster City home values. I predict it’ll be 5 to 6% of the comparable values from January 2008. That erosion primarily is coming in the second half of this year…and it’s not a blood bath. It’s adjusting as it should.

Here’s a true confession…when I got into the business in 1990 I really didn’t know diddly. I took a correspondence course, because we lived in Denver at the time, and then took the state test to get my license. The state test was full of useless information…defining “avulsion” and “accretion”, subdividing acreage, lots of math questions that I needed a calculator for. At the test that day I met several people who were taking it for the 4th or 5th time. Fortunately, I passed the first time and soon thereafter moved here and joined my first office. On my first day I was warmly greeted and introduced around the office, shown my desk and told where the coffee, bathrooms and copier was. It was very friendly. On the second day they wanted to know when I was going to sell a house…and I was encouraged to do so. Outside of some video tapes they had, there was no training. They gave me a phone directory and encouraged me to start cold calling. I learned the secret really quick…being a Realtor is sink or swim.

In a market very much like this one, I devised a system to market myself toward expired listings, that is homes that somebody else couldn’t sell. There were, of course, reasons why these places didn’t sell…I just didn’t care about them. I wanted a listing after all, and having a listing was better than not having a listing. I ended up with five of them…and I was proud of myself! The problem was I had no clue what to do with them! I couldn’t sell them either and they ultimately expired again…after I had spent a bundle on advertising them. It became very clear to me very quickly how important experience was and I realized that I didn’t even know how much I didn’t know! Here’s what I now know…if I had those listings today I could sell them in my sleep.

Most consumers don’t realize that it’s not the company an agent works for that matters, it’s the individual agent who does all the work. His of her abilities and experience make all the difference. I also don’t think most consumers know how much turnover there is in our industry. I share an office at Re/Max Today with another agent and since I’ve been there (1999) I’ve had 7 office mates. With the current exception, all the rest have gotten out of the business. It’s a tough business, highly competitive and very expensive.

I don’t think it takes 20 years to be a great agent, but I do think that an experienced agent has more value than an agent selling their first or second home. When interviewing agents, ask them how many homes they’ve sold.

There’s a real estate agent in Bristol, Connecticut by the Name of Athol Kay who has a great blog. Among other things, he has this little schtick called the Bad MLS Photo of the Day where he’ll show photos like the one above. He’s gained quite a bit of notoriety as a result, including some press in national publications  as well as the likes of the Los Angeles Times. It’s absolutely hysterical stuff, folks! I love going to Athol’s blog…I can’t believe what some realtors and sellers do with some of these photos. I guess I’ve always had the opinion that photographs are taken to try and promote a listing, to put a property in it’s best possible light. What do I know?

Seriously, I think taking good photos of a house may be the most important thing (outside of pricing it right) that a seller and their agent can do to market their home. 85% of home buyers begin their search on the internet looking at listings, the home needs to show well online first. My office has a full time, on staff, photographer for just this purpose and, although I’m not 100% sure of this, I think most of the other offices around here provide the same kind of service. I’m sure there are plenty of agents who do it themselves too…some of them are even good at it. Professional photographers really do have a knack for this though. I’ve seen photos in the local MLS featuring only an open toilet, kitchens with dishes stacked in the sink, beds with laundry on them, pictures of the sellers pets and backyards that were completely brown…all the vegetation was dead. My favorite recently had 9 separate still shots of the front exterior of a house in San Mateo taken from slightly different angles…like maybe 6 inches to a foot at a time. I was completely unclear of the concept but I did get a progressivly better view of the wheels on the little Toyota in the driveway via that technique.

There’s a bank owned foreclosure in Foster City right now, that actually sold because it was priced right, that offered this picture.

We’re not immune, huh. Maybe the only thing worse are no pictures at all. I can’t tell you how often buyers ask me why a house they’ve seen online has no pictures. There are several right now in Foster City, go figure! Some listings are on the market for weeks before the photos show up too. Folks, people are shopping online. They’re looking at photos of homes in their price range to determine if that home is worth actually going out to see in person. If there’s no photographs at all there and all of your competition has photos, why should they be interested in your place?

The concept of an appraisal works like this…when a buyer purchases a home and gets a loan, their lender sends out an appraiser to verify the home’s value and make it safe for them to lend you money. In the very hot market we’ve just departed from, it seemed like homes appraised for whatever amount the buyer wanted to pay. For a long time, homes appraised well over comparable sales value. In 2004 I had a listing in San Mateo that we priced at $650,000, and at the time that represented the most money ever paid for a 2 bedroom, 1 bath house in that neighborhood. After receiving multiple offers we ratified with an offer of $778,000. I was secretly worried that these buyers would not be able to get an appraiser to bring that value in…but one did!

Well, that’s no longer the case. A seller can set a price and even if the buyer agrees to it the buyer’s lender will only finance the appraised price…and that may be lower than what was agreed too. What that means is the buyer will need to bring more money to the table or the seller needs to accept a lower offer. If the buyer has a contingency for that appraisal they can cancel the deal and get their money back if the seller won’t agree to negotiate downward.

Truly, it was crazy before and and I’m sure there was quite a bit of pressure placed upon appraisers in the past to bring values in on some of these crazy overbids. I remember in 2000 there were several sales in Palo Alto that came in $1,000,000 over asking…let’s hope they all paid cash! Can you imagine trying to appraise those? I think the return to sanity in the market we’re in is a good thing.

OK, this may sound like a bit of a rant. (some of you are saying…”what else is new?”) Open House ads in the newspaper make me crazy. Last Friday morning I called the San Francisco Chronicle and placed an ad in the Sunday open home guide for a new listing of mine. During this process I create the ad itself, stipulate it’s length and pay for it at the time with either a credit or debit card. After we had worked through all of the details they gave me a confirmation number for the ad. Just for your info, a three line open house ad in the Sunday real estate section cost’s $118.00..slightly more if you want bold type. Sunday morning I went and got the paper from the driveway, pulled out the open house guide in the Real Estate section and guess what…no ad.

Of course, I called the Chronicle Monday morning to find out what happened and had to leave a message because nobody could help me…I’m still waiting for them to return my call.  I know from several past experiences just like this that it’ll come down to one of two problems…1) They (or I) transposed a number from my ATM check card and thus it didn’t go through (they never call you back when that happens, and who knows why they just don’t run your card while you’re on the phone with them)..and/or 2) the ad ran in the wrong community or county, oops! I’ve finally come to this conclusion…who cares?

Here’s one of the great secrets of the real estate business folks…Sunday Open House ads are worthless and Realtors buy them knowing that full well. They do it to appease their sellers, who want to be assured that they’re getting their monies worth out of the commissions that they’re paying. Many sellers think an Open House Ad is critical and we resisit illuminating them. We don’t want them to think we’re cutting corners on their marketing so we pay it, sort of like hush money. With each successive year of Internet technology, print ads have  gotten more and more irrelevant. In spite of missing the Chronicle’s ad on Sunday I had at least 100 people at my open house. They came from the directional signs, Craigslist and MLSlistings open house guide. For the last 3 or 4 years I’ve asked people at my open houses how they found the place…90-95% say from one of these 3 options. It’s rare to hear anybody mention a print ad. Yet I see 10 and 12 line ads in the Chronicle every weekend complete with photos of the houses…I’ll bet they cost $500.00 or more. There’s no way they bring one single person more than a 2 line ad will…if they bring anybody at all. Obviously, this is a very technologically sophisticated area where potential buyers see new listings instantly via multiple on-line resources, print Open House ads are an anachronism.

Last year I had a seller who called me at 8:15 one Sunday morning when he noticed the Chronicle didn’t run our ad.(Sound familiar?) He was really panicked that nobody would come to the open house. We ended up with more people that week than we did the week before with the ad! Once upon a time Sunday open house ads actually may have introduced a potential buyer to a listing…can you imagine that being said now?

 When I first started in the Real Estate business in 1990 things were just a tad bit different than they are right now. First off, nobody had a computer. The local MLS actually published a book that had all listing data in it and they delivered it to every office in San Mateo County each Monday morning. If you were a paid up member of the MLS board you got one. On each page were 12 to 15 listings with teeny, tiny little pictures (black & white, of course) of the subject property as well as all the listing data that was reduced to coded abbreviations. Every office had a couple of years worth of archived MLS books because that was the only way to study comparable sales. An agent carried around their books everywhere they went and used it when showing property, since all the sellers phone numbers were in there too. Sometimes you would spot a listing while you were out showing clients…and then you would need to go find a pay phone someplace to call the seller to ask permission to come see the house.

It wasn’t long into my career that the MLS entered the modern era and moved everything on-line. Suddenly all of us had all this data become available 24/7…and it was actually up to date! Do you know what was the most amazing part? It was the number of agents who fought it tooth and nail! I remember lots of grousing about the new MLS. Many agents were simply uncomfortable without the books, they were intimidated by the computer and avoided it like the plague. Most of them either adapted, or more likely, got out of the business all together.

In the age we live in dramatic change happens awfully fast…and we have to adapt to it. Take the thing in that photo up there. It really seemed to me that one week I was renting new release movies at Blockbuster on VHS and the next week they were only offering DVD. Maybe it wasn’t actually that short…but it certainly didn’t take more than a few months to totally convert.

I know I’m preaching to the choir here, but it’s all happening again, right now, in Real Estate. We used to have a corner on the market when it came to information about homes for sale, sold data and darn near everything else when it came to buying or selling a home. Now it’s all available online for free. The consumer right now is far more educated and sophisticated than ever before when it comes to buying or selling a house…largely because of the Internet. During all of those booming years many of us got lazy and didn’t keep up with these inevitable changes…and alot of them simply don’t want to. With the market being so much slower, we have to be so much better. It shocks me to see listings on homes that don’t have either virtual tours or still photographs…or online disclosures for that matter. There are several in Foster City right now. Is it a surprise that these houses take forever to sell? 85% of buyers (and that’s probably low!) search the Internet looking at homes yet many, many agents are totally intimidated by technology and it’s benefits…and are determined to not learn too. The spigot is not turned on running non stop buyers anymore and, in this area especially, agents need to be just as sophisticated and educated as their clients.

It’s no big secret that Real Estate is a competitive business. I recently heard that there are roughly 550 homes selling per month in San Mateo county…and there are something like 3300 Realtors. Needless to say, competition is keen and as a result it’s not uncommon for alot of us to become adversaries, particularly when competing for business! If I discover that I’m competing against certain agents, whether it be in a multiple offer scenario representing buyers or for a seller’s listing, the competition takes on a sort of Dodgers-Giants quality to me. I simply can’t lose to them! In fact I won’t lose to them!

Of course, I delude myself because sometimes I win and sometimes I don’t. Often times, when I’ve sold a home and we’re inside of an escrow, it can feel adversarial with the agent on the other side of the transaction. Most of the time things work out just fine, we do our jobs and everybody ends up happy in the end.

Having said all that, it’s very, very common for both buyers and sellers to feel adversarial with each other to some degree too. Everyone has some degree of suspicion toward each other and often that becomes distrust. Buyers can become suspicious of the sellers inspections, sellers worry about the buyer’s inspection contingency, sellers (and listing agents) worry about the validity of the buyer’s pre-approval letter, buyer’s get suspicious about why the sellers are moving in the first place, sellers feel like the buyers are trying to take advantage of them when they write an offer under their asking price and buyer’s feel like the sellers are greedy for asking that much in the first place! And the world goes round and round.

Recently I had this experience: The seller’s loan amount is slightly higher than our asking price on her 2 bedroom condo. Neither she nor her family want her to lose the property to foreclosure and so she’ll get help financially to bring the necessary cash to closing so that she won’t have to endure a short sale. She’s experienced alot of emotional suffering about this situation. A buyer comes along who makes an offer $20,000 under the asking price and I suggest that she take it. She understandably wants to counter offer $10,000 higher so she won’t have to ask for as much help from her family. The buyer thinks about it overnight and gets feedback from friends and family…who advise her that her first offer was too high and she should go $30,000 under the original asking price. She came back with a counter offer $10,000 under her original offer. Her sphere of influence convinced her that the market for this type of property was still going down and that her original offer was too high…even though it was lower than the last comparable sale. Honestly, given the input that she got her thinking was perfectly understandable too. We couldn’t put it together and the buyer walked away. I’ll bet both parties here felt like the other was greedy…and I really don’t think either side was.

Here’s the bottom line….buying and selling a home is a very emotional event in almost everyone’s life. It’s easy and human for us all to misunderstand each other during this process…and become adversarial. It’s a mistake when we do.

 Over the years I’ve seen lots and lots of confusion, from both buyers and sellers regarding the subject of the buyers deposit. In our area there are two commonly used contracts used for purchasing homes and on both the deposit looms large right on top of page 1. Buyers in this area enter into a contract by depositing earnest money into an account with a Title Company who holds these funds until close of escrow where, typically, they’ll apply to the buyers down payment. Both contracts are written to allow for both an initial deposit as well as a increased deposit that is usually made after 10 days in an escrow or after the removal of all of the buyers contingencies. These dates are negotiable.

It’s been a practice in our area for awhile, and I’ve been a fan of this practice as well,  for the buyer to make a full 3% deposit up front. In my experience, one of the seller’s biggest worries is often whether or not the buyer can afford their home and if not, will their deal fall through later on. A 3% deposit up front tends to demonstrate the sincerity of the buyer and helps to allay seller anxiety more than $1000.00 initial deposit does. If a buyer has suffient funds making the full 3% deposit up front gives them a stronger offer over all and these funds can be placed into an interest bearing account should the buyer request that. It’s very important to note that buyer’s deposits are protected by the contingencies they have written into their contract and will be returned should the buyers change their minds during that period. I’m going to have to do an entirely separate blog post about contingencies one of these days otherwise this post will go on forever, but let’s just say that it’s in this area that confusion often arises. If a buyer changes his or her mind after 48 hours, and they have a contingency, they get their deposit back. If a buyer has a contingency and does inspections that frighten them and want to back out…they get their deposit back. I’ve seen sellers be surprised by that fact. The buyer’s deposit is most likely at risk if they back out after removing all contingencies.

Another area of confusion has also been at what point the check gets cashed. When you write a check to a Title company for your deposit and your Realtor negotiates with the seller and their agent your check doesn’t get deposited until there has been mutual agreement between both parties…and that could take a number of days in some cases. It’s also important to remember that once that agreement has been reached and you’ve been happily informed that you’ve bought that wonderful new place your check will be sent to the Title Company…and they will cash it. “What?” you say. On several occasions earlier in my career I’ve had buyers call me after we had been in escrow a week and said “Hey, the Title Company tried to cash my deposit check! I don’t have any money in that account! I thought they just held it?”…No, they cash it. Having said this, it’s perfectly understandable to be flustered and stressed when buying a house and I’m not making fun of anybody, but I have this conversation now with every client. When you ratify, your deposit gets cashed…it’s a good idea to have funds in that account.

Maybe I’ve gotten carried away with photos of cash lately? Oh, well. The other day I got an offer on a client’s home where the buyer’s were asking the seller to pay their closing costs, and it got me thinking. Sellers, you might think about this. Hypothetically, let’s say you have your home on the market for $800,000 and the buyer makes an offer of $810,000 and asks for $10,000 to be credited back to them for closing costs. ( This type of scenario is not uncommon in this market right now).

30 days later (or more), when you go to closing, is the commission based upon $810,000 or $800,000? In most cases I’ll bet you’ll pay on $810,000. Why, you ask? Because plenty of time has passed in the escrow and the Title company bases the sellers closing papers on what they believe to be the purchase price per the contract…and they will calculate the total commission upon that. This is the type of thing that routinely falls through the cracks in the long paper chase that is an escrow.

Always ask your agent what price the commission is based on. You don’t need to pay a commission, to two different agents no less, on money you’re crediting the buyer. The commission should be paid on $800,000, not $810,000.