Wednesday, March 15, 2023 / by Sydney Stahr
March 2023 Newsletter - Dennis Balduf
Don’t Talk to Strangers!
Well that’s an odd thing for a Real Estate Broker to say given that we often make our living doing exactly that!
Turns out that as we make our way through the trials and tribulations of raising a small human, we are quickly approaching the point at which we will need to have that conversation with her. While Aubrey does tend to have a pretty good initial hesitation when it comes to strangers, she is also a very warm and bright little girl (wow…no longer our baby!) and she feels very secure in her world. She is also quite curious and adventurous. These qualities could lead her to trust a smiling face when she ought not. Soooo… we will have the talk but in a way that is educational vs. fear based so as not to kill that adventurous spirit or cause her to feel insecure or afraid (not the best way to go through life!). We will tread lightly.
Um…ok, Dennis, what has that got to do with Real Estate? Well…it just so happens that this is a conversation (or one very similar) that we are now having to have with our clients (Buyers especially, but Sellers as well). You see, the Real Estate landscape (pun intended) is changing in some subtle, yet important, ways. Commission/compensation, Listing provisions and options, advertising options, contract forms, housing developments, and houses themselves are seeing changes that involve increasing complexity as well as additional risk to the consumer.
The Devil is in the Details…
On the face of it most of the changes seem innocuous and most folks would very likely not notice nor care that a change had occurred. Those of us in the industry who are paying attention, however, are keenly aware of the impact they make and why it is so important to educate our clients about them. Let’s look at “Compensation” (until recently known as commission…now officially renamed) to get a sense of the scope and importance of the changes.
Most of you know that for decades now, as a matter of routine business practices, the commission in a Real Estate transaction has nearly always been paid by the Seller. Listing Brokers, knowing that they would offer out a portion of the commission to a cooperating broker (one who brought the Buyer to the transaction) would negotiate a fee that included both the portion to be shared and the portion to be kept. A few years ago, a change occurred to make that fact more transparent to the Sellers, but it was still presumed that the Seller would pay the commission for both sides. Recent developments in several “years-long” national lawsuits (NONE involving any Washington state Brokerages or MLS’s) have brought to light the need for not only greater transparency for both Sellers and Buyers concerning commissions, but also a mechanism to allow more open and flexible negotiations over the amount of and who pays which part of the commissions. To accommodate that need, our contracts have changed leading to what should be (isn’t always…and I’m betting is far less often we would hope or assume) a far more in-depth discussion with both Buyers and Sellers about commissions and how they will be handled.
This may not seem like a big deal until you realize that if it is not handled well, it is likely to lead to someone getting an unpleasant surprise about how much they owe and why. One simple example would be if a Buyer has signed a Buyer Brokerage agreement with their broker and then walks into a new construction plat where they are not offering any compensation for the Buyer’s broker and falls in love with the homes. They will now be in a position of needing to either pay their broker out of pocket at closing or building those costs into the transaction (which the Seller may or may not be willing to do and which may or may not lead to appraisal issues). If that Buyer is not well educated about how the commission is to be paid, they may be in for a big disappointment.
Additionally, depending on how each party elects to deal with the commission, both Buyers and Sellers can put themselves in weaker negotiating positions or at risk of owing a commission when they did not intend to. This is just one small example of many. We are happy to have a full discussion with you over coffee or a glass of wine.
Blah, Blah, Blah….What about the Market?!?
Yes, yes, yes Dennis, we hear you, but that’s why we hire you…so we don’t have to know all of that. You will let us know when we need to, right? Yes.
Meanwhile, what has been happening in the market?
To keep this newsletter shorter than a Novella, I will summarize.
My predictions in December’s newsletter were accurate. Prices have continued down bottoming out in December at a point 25% under the peak in June. A bit of recovery in January was followed by another fall in February leaving us at a point about 9.5% behind last year’s prices at the end of February. Sales volumes are down as well. Sales so far this year for the county are 490 as compared to 644 during the same time last year. Interestingly inventories are not improving, and market supply has reversed course and is dropping again now standing at a 1 month supply. The driver here is lack of new listings along with a small heating up of buyer demand (seems buyers are getting used to the idea that interest rates are what they are). Moving forward this year, I expect to see prices move up, but at a slower pace than we have seen in the last 2-4 years. By late Summer or Fall we should cross back into the positive gains territory in our year over year comparison. Interest Rates are likely to soften in the second half of the year driving a bit more demand, and inventories will continue to struggle but gain a little ground. So what does it all mean?
For Buyers—BUY, BUY, BUY—I firmly believe that everyone should, at least, own the home they live in if they can afford to do so. There are just too many good reasons for this. In addition, my basic strategy for using RE as a wealth building tool is this: Buy as early as you can, buy as often as you can, buy as much as you can (without straining the budget to the breaking point or taking on an unhealthy amount of risk) and hold on to it as long as you can. Move your money only when it makes absolute sense to do so. With very few exceptions, time is never your friend as a RE Buyer. The market will continue to go up, and interest rates are not likely to improve dramatically in the near future (see December’s Newsletter for a discussion on why it doesn’t matter). So don’t think you are going to “out-wait” the market and find a 2013 or even 2017 priced home at 2021 interest rates anytime soon. You will look back in 20-30 years and wonder why it did not materialize after paying off your Landlord’s mortgage. We will be hosting some Buyer classes over the next few months where you or anyone you know who is thinking about buying can come get great information, input, and questions answered. See our ad and link below for more information.
For Sellers—TIME TO GET REAL—. “Well I guess if I had sold last Summer I could have gotten XXX more for the house”. This has been said to me by almost every seller I have worked with since about September last year….and they are correct. One reality for Sellers is this--You have missed the price peak. However, there is another reality—Prices will continue up and eventually will surpass that peak. Our continued low inventories, still strong demand, and improving economy almost guarantee it. So THE reality is that if you are wanting or needing to sell, it is still a good time to do so. You just need to get REAL about pricing and expectations.
For Investors—WAIT FOR IT!—With the improvements to pricing we have seen, it could be easy to get carried away and jump on something without really considering if you should. While a cap rate of 5-6% was good enough to consider offering during the low interest rates of the last 2 years, It doesn’t look so good right now. Waiting for a deal that turns a 2% better return (say 7-9%) will be worth your while as it will make up the difference in lost income over the first year or so (even if it takes 4-6 months to find the better deal) and continue better returns for the remainder of you holding period. There are more options presenting themselves, however, those reasonable deals that do pop up are being snapped up quick by diligent buyers who can act fast. So be patient and poised for quick action. Give us a call if this is something you would like to explore.
REally Good News!!!
As of January 19th, 2023, REally Property Management is now the proud owner of Kitsap Property Management. The acquisition almost quadruples our rental inventories! Newly acquired (and some retained) staff members are all working hard to blend the companies and raise the level of service being provided. With over 30 years of operating history KPM offers a strong presence and a reservoir of good will giving us a unique opportunity to continue growing at an increased pace. We are proud to have been selected to continue their legacy.
It REally Matters!
Do you know:
1) when a lease is required to be notarized and recorded?
2) how much notice you need to give your tenant in order to inspect the property?
3) how much notice you need to give your tenant to raise the rent?
4) what constitutes “good cause” to evict your tenant or end the tenancy and the timeframes for those notices?
5) how much notice you must give once rent is late?
6) at what point you can start charging late fees?
7) How much you are allowed to raise the rent?
8) how and when a tenant’s “guest” becomes a tenant in their own right protected by the Tenant Landlord Act?
In Spring of 2021, the Washington Legislature passed sweeping changes to the Landlord Tenant Act. Those changes affect every single question above and SO MUCH more. The answers to those questions might surprise you. The consequences of not following those laws and/or the timeframes set forth in them could be as minor as some lost revenue (not that this is minor when it is YOUR revenue) or as serious as a lengthy and costly lawsuit as either the plaintiff OR defendant. REally Property Management takes these issues seriously and stays abreast of all current laws. It’s why we call ourselves your Real Estate-ally. We’d be happy to share what we know and how we can help you grow. Give us a call anytime!
No Longer Strangers!
As I reflect on the opening of this newsletter, it strikes me that one of the most wonderful aspects of my career is the opportunity it gives me to talk to so many strangers. And by talking with them…they become strangers no longer. They turn into the family and friends I call my clients and I get blessed by having so many wonderful people in my life. So maybe I won’t have that talk with Aubrey, or maybe it will be more focused on being able to differentiate those very few strangers who we ought to avoid and embracing the rest. May you meet some wonderful strangers who become lifelong friends.
Your “Making a living by talking to strangers” Realtors,
The Balduf Group