Buying and Selling During a Pandemic

“Should I buy this home considering the virus and stock market issues”?

It’s March 13, 2020 and negotiating deals recently saw this question come across my desk more than once.

Speak to your Lawyer, Accountant and Realtor® about personal advice based on your situation. Consider the following thoughts.

  1. Real Estate is truly local. The overriding local economic, social, taxation, migration and demographic factors are more important than other forces. Your local market might currently offer some killer deals?
  2. Money placed into “real property” is a longer-term investment.
  3. Rents will not change due to a pandemic and stock market crash per se. Base rents, to real investors, set the lowest price model for valuations. If you can rent a property cheaper than owning it (plus a savings plan) real estate in your area probably is overpriced. Ask your Realtor® about CAP rates and Net Operating Incomes in your area.
  4. Economic activity after the pandemic usually increases dramatically. Hurricanes destroy roads and infrastructure whereas pandemics panic and scare in modern times. For example, SARS hit in 2002 to 2004. In my area, real estate prices doubled from 2003 to 2005 and tripled by 2007. To be clear, SARS itself had no correlation to real estate prices increases in my area. Connecting the two is not statistically valid. What was valid were items mentioned in point 1; local factors.
  5. People with cash will be much richer in 6 months than you. As financial turmoil spreads, people with solid cash positions are wringing their hands. So, looking at your purchases without emotion makes a lot of sense right now.
  6. Real Estate prices and selection are based on supply and demand; Supply of property and money (financing). In my area, for example, supply has been limited for many months. Prices have fluctuated up and down. Rents are high (due to a shortage in supply). Government taxation has nearly halted building new units. And, last week my partner and I were involved in two “multiple offer” negotiations. The demand is high. Supply is limited in my area. What’s going on in yours?
  7. Financing. Recently, in Canada, the feds dropped mortgage rates. This helps all buyers access more money. In a market where supply is limited, this will raise prices over time.
  8. Prices and Values. Prices and values are relative. Mortgage rates and terms compared to rents are the real key. Think “cashflow”. People who wait to purchase are simply paying other people mortgages. I find over time, a massive drop in housing prices is not likely and those who wait may get priced out. Unless your parents own a mansion, you need someplace to live.
  9. FEAR. Many people will retract and defer based on fear. This will allow those who are analyzing the numbers and trends to have more open and free rein to deal in their best interest. But, it won’t last.
  10. You can’t time the bounce back. The stock market will bounce back. Buyers and Sellers will bounce back and Governments respond much faster with economic stimulus. Waiting to time your entry probably won’t work. In the past, bounce bask could take months and years. Today, I suspect this could happen within weeks and months instead. And, when people realize the bounce back has happened, it’s too late.
  11. Old Fashioned Advice. Everyone can be an expert in hindsight. A real expert crunches the numbers and takes action without emotion based on the data available at the time. If the numbers work and you are in it for the long term (+ 5 years) then it’s a great time to purchase real estate.

Real estate purchases are big. If you are a first time home buyer or investor, you will have to learn different thought processes in order to move forward. A low price on a bad property is far worse than a high price on a good one. What makes a good purchase? Running the numbers, looking at local factors and thinking long term are strategies of the winners. Remember, everyone needs shelter.

(Dean Desrosiers 2020. The thoughts and opinion expressed are those of Dean Desrosiers and not Century21 or any other entity he may be affiliated with)

Sell me something, please!

Two drops of grapefruit essential oil into my DesrosiersCook branded water bottle had me smiling this morning. My good friend Jen introduced my wife and me to essential oils and how they can enhance our lives. Billy, through his clever network of suppliers, sourced cool white with blue lettering “Swell” style water bottles. We have bought hundreds of essential oils and water bottles. Both items, I like very much. They make my short experience on this planet slightly better.

We purchased these items from friends. And, it’s important to note that we always try to purchase from friends and family. Why? I think it’s part of the meaning of life.

Sure, we could go online and find a slightly cheaper version of each item. And, chances are, they are all made at the same factory in the east somewhere. But to me, the act of supporting a friend is the essence of life.

Your entrepreneurial friends need your support. Those who rely on commissions, contingency sales or who own a retail business need your support to pay their bills. Simple as that.

Often your entrepreneur friends do not have retirement plans and they have taken risks to create a business. Unlike people with “Jay-Oh Bees”, entrepreneurs do not know if they will be able to pay their bills each month. Budgeting when sales are slow can be stressful. Jim Rohn calls it, “too much month at the end of the money.”

How can you help your entrepreneurial friends?

Buy their stuff, drink their Koolaid, ask them what help they need. Avoid their competitors and don’t be a dick. Support your friends and family.

One reason your real estate market will not crash!

Quickly scan the internet comment sections regarding housing prices and you will see a large number of folks commenting on the impending crash of prices and the fall of the capitalist system.

However, there is one simple calculation that will tell you if the sale price of houses is acceptable for the area. It’s not the only criteria but this method works well for most of the markets.

Remember back when I said there are 3 ways to value real estate? This method is based on the Income Method. It utilizes the relationship between the cost of ownership (principle, interest, taxes, maintenance, utilities) measured against the rental income.

This value is expressed as Net Operating Income and you will sometimes hear the term CAP Rate.

In simple terms, if the property can be rented out for an operating income which exceeds the expenses to own it (a net), the property is considered a good investment. How much net operating income varies based on the property. Older properties require higher CAP Rates because of maintenance and variable expenses. New properties can often sell for lower CAP Rates because of less maintenance.

At press time a variable rate mortgage is 3%. Buy a 4 bedroom house at $620,000 and put 20% down and your mortgage for $500k will be $2100 a month. Monthly Expenses? Taxes $300. Water $100. Insurance $150. Maintenance $200. Utilities are a wash as renters and owners both pay these. Total monthly cost is $2,750.

Three things to consider.

  1. About 40% of the mortgage payment pays down the principle so the entire mortgage is not an expense. About $800 a month in equity is building for the owner.
  2. A four bedroom house in my area rents between $2,500 and $3,500 a month. So, this house may be a good investment.
  3. Some people may create a 1 bedroom suite and rent it out for $800 to $1,100 in my area. Which, makes ownership of this home much less than rent!

Understanding Net Operating Income and CAP Rates will turn you into a savvy real estate investor in no time. In the short run ask your Realtor® for these stats and buy with confidence. Your home and investment are on solid financial footing.

What’s my house worth?

The number one question people want answered in real estate is “what’s my house worth?”. The answer, “that depends”.

The current trend online is to attract viewers with online and automatic valuation tools. “Click here to learn the value of your home”. Surrender your email address and then prepare to get dripped (marketing jargon for emailed, texted, called on a regular basis until you purchase or threaten death to the caller). These tools offered by Zillow, REMAX and many other providers are simple lead generation schemes. Here’s why.

Markets are local. A two story home in one part of town on a busy street might look similar to the same age, style and size as another but place this home in a “better” part of town on a quiet street and the price will be dramatically different. Minor differences in location can mean a lot.

Statistics are History. Current transactions between buyers and sellers happen fast and only become statistics 30 to 45 days later. The average first time buyer writes 2 to 3 offer before they acquire a home. This could happen in a matter of days. Following statistics, which are used by online systems for valuations, are no help to buyers who are in the hunt. Buyer’s who are activity looking at houses understand pricing better. Therefore, online valuation tools can easily be 30 to 45 days out of date which is a long time for buyers.

Tax Assessments are Wrong. The assessment authority will admit, “we don’t ever see the inside of the homes we are assessing”. When tax assessments are low, homeowners rarely complain because it means lower taxes. When the assessment is perceived to be high, homeowners fight them! Or, they sell! Tax assessments are not to be relied upon.

Buying is largely emotional. Smart buyers view multiple homes, learn pricing differences between features, areas, style and age. However, when a buyer walks into “their” new home, the choice is often automatic and partly emotional. Statistics cannot capture “feel”.

3 Methods to Truly Value Your Home. There are three accepted methods in the industry for the proper valuation of real estate. Each method will also have derivatives. Cost Method – what would it cost to buy the lot and replace the home in today’s construction dollars. Income Method – the value of the property if it was rented out and generating income for the owner/investor. Comparative Market Assessment – Comparing the subject property to local sales of similar homes against houses currently listed properties for sale.

Online tools are fun. Simple as that. The most important question is “why do you need to know the value?”. Are you selling, borrowing money or just want to update your financials?

A competent realtor who knows your area should be able to advise you and with the added bonus of no harassment! Valueations are often performed free! After all, what’s your time worth?

Showing Properties…Simple?

Have you ever called your real estate agent to book a showing? Here is what happens.

  1. Your agent contacts the listing agent to make sure the property is not sold.
  2. Your agent sends a formal request to show the property at a set date and time.
  3. The listing agent receives the message and makes a log entry, contacts the seller and waits for approval. If all is good, the showing is confirmed by the listing agent sending a confirmation message back to the buyer’s agent via email and text message.

You simply meet the agent at the listing and are quickly escorted throughout the home. Simple!

WAIT!

What if the seller cannot accommodate the showing as requested? What if there are tenants who do not respond timely to the listing agent’s request. What if the showing is cancelled or delayed by the seller or tenant? And, what happens when the buyer’s agent has lined up two or three showings and now has a gap in the schedule? What if there is a pending offer? What’s the status of the offer? Is the offer in negotiation? What’s the process now?

Booking a showing may seem simple but there is a lot that goes on behind the scenes. In most jurisdictions the timing of offers and showings comes under legal scrutiny should a conflict arise. Agents have specific legal and ethical rules that govern their conduct designed to benefit the public.

Often, these rules and ethics are not crystal clear and agents do their best behind the scenes to ensure fairness. This is one reason why top agents often say such great things about other top agents. A solid transaction always takes two talented agents!

Veteran full-time agents will agree:

  1. Negotiation starts when the showing is booked. Every comment, question and nuance is important should the buyer write an offer later on.
  2. Every showing is important to the seller and to the buyer. If it’s not, don’t book it. Be respectful. You are not buying every house you look at but someone took a lot of time out of their day to prepare the home. Respect.
  3. Feedback is appreciated. What did you like or dislike? This could help the seller in the future. And, more importantly, what did you purchase instead?
  4. Work with a full-time agent. You will notice the difference.

Viewing and screening properties is the most important element in real estate sales. It may seem like a simple appointment but it can lead to a great real estate purchase with the right advice.

D

 

Adviser, Advisor and Master

I just learned that my banker giving me “advice” is not an advisor but rather an adviser. Something to do about licensing. I am not totally sure of the difference but to me, it doesn’t really matter. I know he works for the bank. He is quick, clever and creates solutions for us within his company’s system. We trust him. We also recognize that his loyalty is to his company first. He serves his company as master first, or least he should. We get it. Thankfully, his company has some helpful products and what feel is good service.

But not all consumers are this aware.

When it comes to real estate, finances, wills, estates, car purchases and important life choices, who is your adviser? Does that adviser serve you or another master? How can you be sure the advice you are getting is “truly for your benefit”?

The first answer is, “you can never be sure” but you should take caution to learn the how your advisor gets paid, who and how they are licensed and have open and frank conversations about how advice is delivered and received.

Licensed Fiduciaries in BC are sworn to protect your privacy and act in your best interest at all times.

Lawyers, Doctors, Dentists, Dental Hygienists, Nurses, Notary Public, Real Estate Agents

Non-Fiduciaries Roles:

Bank Employees, Car Dealership Employees, Mortgage Brokers (?), Life Insurance Agents, Financial Planners, Investment Advisers, Hair Dressers, Uncle Joe.

 

 

 

 

Serving One Master

Matthew 6:24 “No one can serve two masters, since either he will hate one and love the other, or he will be devoted to one and despise the other. You cannot serve both God and money.”

June 15th Real Estate Agents in BC are banned from Limited Dual Agency. It’s an old lesson and it’s time now for agents to understand what this really means.

To me, it’s the goal to avoid conflicts of interest. My interest to support and protect the interests of my client needs to be placed at the forefront of my actions. Yet, real estate is a consumer game. Buying, selling, products, services, features and benefits, and emotions are involved. It’s not so cut a dried as some would like.

Let’s say I work for a developer selling new downtown condo’s and they are selling fast. My mom wants to buy one. Today, based on the rules, I would have to step aside and get my mom and the developer new individual agents. Agents that neither really know. Interesting. I don’t think this serves either of them very well at all. The delay could cost my mom a place to live. Mmmm.

Or, I list a home down the street in my area and my buyer clients whom I have shown many, many properties want to view the property. Technically, I am now in a conflict. And worse, if they want to buy it, I could again be double recused. This one I understand but I still struggle with.

Can agents create a thriving business serving one master? I know we can. But it’s a hard profession to succeed in and perhaps one of the hardest to “make it”. So, next time you meet with your agent, discuss these changes and how you will tackle these issues should you run into them. You will need to be flexible and you may not feel “served” but let’s hope you get the deal!

Let’s Party! Ok, maybe not…

As I dropped my daughter off so she could go overnight camping with friends, I realized at my ripe old age, parties are tough on me and take a greater toll on my body. I suspect my daughter will be bright eye and bushy tailed the next day just fine. Me, I require a little more recovery but I still love parties.

However, there is one party you won’t see me get involved in: “Unrepresented Parties”.

BC’s ban on LDA (see my last blog) is accompanied by new real estate agency law. What’s most interesting is that the Real Estate Council of BC is forcing consumers to choose one of two paths: Client or Unrepresented Party.

The Client path looks to be paved with good intentions, loyalty, avoiding conflicts, full disclosure and privacy. Sounds great to me. I honestly feel I have been working this way for 10 years. Not perfectly I am sure, but trying.

And, the Client path sounds even better when you learn more about the Unrepresented Party road. It’s like a bush party gone bad with burning tires, hung over people everywhere and all your private bits out there for everyone to see. You could wake up (from a transaction) and realize you are hung over and your stuff is missing. Have fun getting home!

My practice is and always has been based on working with clients. As such, I will be showing you some new forms and I will need you to sign them. It will be a great experience and I will help you with the biggest financial decision of your life, as client and agent.

If you choose to remain unrepresented, I wish you the very best. I can share facts with you but not advice and remember, anything you say to any agent as an unrepresented party, can and will be used against you in the real estate transaction.

Next up, I will define the true nature of being a Client versus Unrepresented Party.

Negotiating Leverage

Negotiating the sale of real estate is one of the most dynamic events in business and personal life. Money, emotion, needs, desires, features, timing and more combine to create an interesting storm.

Your real estate agent must be a negotiating expert. And if not an expert, your agent should at least profess to be a student of negotiation strategy and tactics. Your agents skill in this area will serve you: good or bad.

One tactic that is essential to understand is leverage. The FBI* tells us that there are three types. You will see other authors using similar categories with slightly different grammar.

Positive Leverage: Something good will happen if you agree to my terms.

Negative Leverage: Something bad will happen if you don’t agree to my terms.

Normative Leverage: If you agree to my terms, your normative values (the way you see the world) will be satisfied. Interestingly, this requires that the negotiator learns the normative values of his or her counter part. Insert: good communication skills and knowledge of “people”.

In residential real estate negotiations, I have found that positive and normative leverage are most powerful. Continue to read this blog and you will learn more.

*Thanks Chris Voss, Author: “Never Split The Difference”. Highly recommended read or audio book.