Cancelling A Listing

Over the weekend, a letter was published in the real estate section of the Arizona Republic regarding the cancellation of a listing. The seller, it seems, had reluctantly agreed to a 6 month listing, after the listing broker had verbally agreed to cancel at any time. Right there, you can see the problem. Verbally.

After two months, for whatever reason, the sellers decided they no longer wanted to sell their home, and requested cancellation of the listing agreement. The broker said "Sure"; but requested $1000 compensation for advertising and promotion already completed.

The attorney who responded to the letter surprised me with his answer which was, essentially, try to come to a financial agreement.

First, let me say that if, as a Broker, you are willing to cancel the agreement, and so state at its inception, it is to the benefit of both parties to put the terms, and any financial penalties of such action, in writing at that time.

It seemed to me that the broker decided, retroactively, to charge for services rendered, and held the seller to ransom until he coughed up. Ethically, I find this disturbing and disappointing. We charge a reasonable rate for our services, but never collect a penny until they are completed, i.e. the home is sold. Some we win, and some we lose. It's part of the cost of being in business.

There are some companies who break down each individual service offered, and charge accordingly, sort of "a la carte" pricing. That is fine. In this instance I think the broker should take the high road, forget the charges and move on. If, in the future, that is how he/she wishes to conduct their business, disclose it up front and in writing.

Phoenix Real Estate, No more Mr. Nice Guy?

In the extremely competitive real estate market that is gripping the nation, and particularly the greater Phoenix area, should your agent be a nice guy?

Let me explain. First of all, should your real estate agent be a "nice"guy? (or gal, I know!) Well, whether you are selling or buying, what you need most of all, in any market, but especially in tough markets like Phoenix, is an experienced and competent agent. Many tout their longevity as a plus, and it is to an extent, but their competence is much more relevant. Ask yourself, who would be better? A motivated, 4 years experienced, internet savvy, go getter with several closings to his credit? Or a jaded, 25+ years experienced, "inter-web/tube-hating" old crank-pot? Clearly, it is not a simple question. However, let me give you an example of why "nice" sometimes does you no good, at all.
Quite recently the relocation department of my previous company had me visit with a couple who were, of course, selling their home due to a business re-location. One of the problems with the home was that it had an addition, but it was not clear whether it had been permitted or not. Plus, when they initially bought the house, it was implied that the additional footage was not recorded by the assessor, and was therefore "bonus". After due diligence, I was able to show them that it was permitted (the good news), but that there was not "bonus" extra square footage, the city had already included the footage in the assessment (the bad news). I was in competition with two other companies, but the couple chose me to represent them. We agreed to start at $259,000, but to reduce it to $249,000 within 2 weeks if showings, and interest were low.
There were a number of cosmetic items that needed to be addressed, for which we allowed 2 weeks before entering the property in the MLS. Well, the two weeks became 4, and in that interim period I had taken the decision to move to another company. I immediately returned the file to the re-lo department for them to assign it to another agent. Well, they assigned it to a "nice" guy, and this is what he did. He listened to the sellers who "wished" that the extra footage was bonus, even tough they knew it was not. In the MLS he actually wrote that the extra footage "probably" was bonus, despite the assessor's assertion to the contrary. This last act, incidentally, leaving both the sellers and himself open to a lawsuit. At their prodding, and despite having a signed agreement at the lower price of $259,000, the "nice" guy decided that they would at least try $289,000.
So, 60 days later, the price is finally $259,000 but the property is as stale as week-old bread. See, what a "nice" guy gets you?
If the agent will not stand up to his client, how on earth do you think he is going to stand up FOR you in a negotiation.
In a slightly different vein, I sometimes have clients who say (of their neighborhood Realtor) "Oh, you must meet Jim. He's the nicest guy you'll ever meet!" They then proceed to recount all the neighborhood secrets that Jim has gleaned and has happily divulged to all in earshot. Little gems like, "I listed it at $750,000, but it'll go for $650,000!" The fact that such gems are ethical violations do not bother Jim, or the people he tells. I normally respond by saying if he is telling you all your neighbor's business, don't you think he might be revealing yours" That normally gets them thinking.
Let's be honest, nice is a very overused and meaningless word. Should your Realtor be nice? It would be nice, I suppose. Ideally, you really want smart, knowledgeable, honest and diligent. Believe it or not it is out there if you look hard enough.

To Permit, or not to permit; that is the question.

Here in the Valley of the Sun, as in the rest of America, many homeowners decide to remodel rather than move. Often, it is a sound idea. However, many Phoenix residents pose the question "Should I get a permit?"

The simple answer to this conundrum is, of course, yes. If it is required by law for the work you are contemplating, one could argue that you are indeed obligated to obtain a permit. However, this does not make for a very interesting article, so let us dig a little deeper to find out why.

Firstly, is it actually required? Obviously, you do not need to pull a permit for something as simple as changing a washer on a faucet. but in some parts of the country, any alteration to the home that exceeds $500 in cost, may require a permit. Make sure to check with your local authorities before you even start on the project.

Many folks tell me they do not want to obtain a permit because they want to "save" money. The reality, usually, is that such a move would probably prove to be a false economy. Because the permit is only part of the process; the other part being the physical inspection. Many folks regard the inspector as an overbearing busybody, and I suppose one or two are, but the fact is they are extremely knowledgeable professionals who, in essence, act as a buffer between you and your chosen contractor. You could argue all day with your contractor about a detail you think is necessary all to no avail. The inspector says "do it" and it gets done. Therein lies the reason to do the job properly. An inspector checks the plans, and the completed work, to ensure that all areas of work are completed correctly, and most importantly, to the standards required by the building code. (Most municipalities adhere to the International Building Code) It is a health and safety issue, and circumventing the permit process really is, as noted earlier, a false economy.

In a previous life, I was involved in constructing a new garage on my property, which was built on a hillside, which means the code is much more stringent. Special concrete mix is required, extra rebar was necessary as was a substantial retaining wall. The inspector's advice was invaluable as he thwarted the contractor's attempt to save money (cut corners) at every turn. I shudder to think how the project would have evolved without the inspector's participation.

Also, when it comes time to sell an addition to a home constructed without a permit is not just "not a positive". It is not even a wash. It is in fact a negative as any potential buyer will not only ignore the "improvement", they may attach a negative dollar amount to it, as the city, or state, may require its complete removal.

Also, do not fall victim to a contractor telling you, "I will do it all to code, but we will just save the cost of the permit." You will just be wasting your hard earned money if you do.

Finally, if it is not added by permit, and therefore to code, it will not show up on your city/state tax records. That means that any square footage you thought you added will not be recognized by an appraiser, nor the lender who employed him, when valuing your home for a potential buyer. Still glad you "saved" money on a permit?

Phoenix Real Estate Predictions for 2008

Well, here we are again! Another year older and deeper in debt (thank you Roger Miller.) Before I put quill to parchment I went back and read what I had predicted for 2007.
I think I was right to predict a gloomy market and the market has indeed seen a reduction in sales volumes and sales prices. In fact, with only minor editing, I could easily re-print last year’s predictions without worry.

Unfortunately for some, prices still have around 5%-10% more downward potential before the market stabilizes, which I predict may occur by late ‘08, early ‘09. I say “unfortunately for some” because lower prices are good news for first time buyers, and for those folks looking to trade up to a larger home.

It is also the reason I am at a loss to understand why the government, in a bi-partisan effort, is attempting to bail out some of those who took out adjustable loans that they could not afford, and that they now claim not to have “understood”. I fail to see how manipulating the free market, in an attempt to keep prices up, is a good thing. Luckily, our inept government has structured the bail-out so poorly, that I doubt it will reach many of its intended targets. However, it will provide the politicos with “window dressing” in an election year to create the illusion that they cared.

So, back on topic, in 2008, inventory, which remains at a historically high level, will diminish for the following reason. Clearly, about half the current listings are not truly for sale. Many are overpriced and what I call “opportunistic listings”-- I.E. the owner will sell only if someone pays their inflated price. Not gonna happen. As those listings expire, and more experienced agents decline to re-list them, and novice agents go back to their original jobs, we will begin to see a return to some sort of equilibrium.

Another factor in depressing re-sale prices is the relentless onslaught of new construction. Even though housing starts have slowed, there remains an unbelievable amount of new homes being built. That is a builder’s right in a free market, but it will have an effect, All of which is good news for buyers, who remain nervous, but will start to re-emerge in 2008.

Sellers are not in such a happy position but, realistically only those who purchased since 2005 are in any sort of hurt. Even in “normal’ markets, it is very difficult to turn a profit on a house in only 2-3 years, partly because of closing costs. If you are just slightly upside-down in your home, my advice is to hold on and ride it out. Eventually, it will come back. The effect of running away and possible foreclosure or bankruptcy could decimate your credit rating for many years to come, so do not take those steps lightly.

Finally, whilst the housing market can be stressful at times, remember without the health and happiness of you and your loved ones, you really have nothing.