Insurance: Nobody's Happy But Maybe Something's Happening!

Call this "The Summer Of Our Discontent".

A groundswell of discontent over the cost of property insurance may lead, finally, to governmental action. Perhaps even a special legislative session.

Even though Governor Bush says he has no plans to call a special session, Trey Goldman has indicated that the insurance problem has Tallahassee all abuzz. Goldman is a Tallahassee insider and legislative counsel for the Florida Association of Realtors. He's in a position to know what's up, who's in, and why now.

"Residents all over Florida are starting to get their rate increase notices," said Goldman. "The first thing they're going to do is call their insurance company. And the next thing they're going to do is call their legislators."

In other words, like it or not, Governor Bush may have little choice but to call a special session and force state legislators to deal with the state's insurance crisis this summer.

In the meantime, Governor Bush has named 15 people to a VIP task force called the Property Insurance Reform Committee. The group is charged with suggesting ways to improve competition and reduce the number of policyholders in the Citizen's Property Insurance Corporation.

Taxes Too!

In addition to the problems associated with insurance, it appears that property taxes are going to be given a once-over as well. The Governor has formed a Taxation and Budget Reform Commission to recommend ways to curtail increases and remove inequities in Florida's property taxes.

'Bout time!

If you'd like more information on real estate, go to my website at www.thestpeterealestatesite.com.

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For Sale By Owner Factoids

Here are the latest facts on why unrepresented sellers, popularly known as For Sale By Owner or FSBO's, should probably hire a real estate agent:

According to the National Association of Realtors' (NAR) Profile of Home Buyers And Sellers Report ...

1. About 10% of all properties for sale at any given time are FSBO's.
2. Of that 10%, only 13% will successfully manage to sell the property on their own.
3. Just over 87% of FSBO's end up selling their property through a real estate agent.

In a softening market like we're in now with vastly more homes for sale than there were a year ago and vastly fewer qualified buyers, why would you want to try to sell a residential property without the aid of a professional realtor?

If it is just to save the commission, you need to know this little factoid from NAR: Professional real estate agents manage to sell comparable property for an average of 16% more than an owner will get.

Now, if the real estate agent gets 16% more for the property and the selling commission is 5 to 7 percent, it means that on average the real estate agent is going to net the owner from 11 to 9 percent more money at closing (other things being equal). That additional profit more than covers the amount paid in commissions, doesn't it?

Plus, the agent is probably going to sell the property faster because he has access to more marketing programs than an owner does, the agent is going to pay for all the marketing costs, and the agent is going to do all the work. How do you beat that?

If you'd like more information on real estate, visit my website at www.thestpeterealestatesite.com.

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The Importance Of Real Estate Marketing

"Terry, you're always talking about marketing. What's so darn important about marketing anyway? Don't all real estate people do marketing?"

These are good questions that were asked of me by a man in St. Petersburg who was in the process of selecting a real estate agent to sell his house. He's right, I am always talking and writing about marketing and its use in real estate. It rarely occurs to me that some people don't know what marketing is, what we mean when we are talking about marketing, and what marketing's impact is on a real estate transaction.

Essentially, the best definition of marketing that I have ever heard is that marketing is selling what you make rather than merely making something you can sell. That definition has remained firmly fixed in my head for well over thirty years since it was told to me by Bill Lusher, a very knowledgeable advertising agency executive from Pittsburgh who it was my privilege to work with for several years when I was a young man in the advertising agency field.

Lusher is telling us that virtually anybody can sell something that is in high demand. About all you have to do is put it out there and the public will come along and buy it. But suppose you make something for which demand has slipped or is on a downward spiral? Now you need to do a lot more to find buyers for your product. You need to be more aggressive in letting potential buyers know you have the product for sale. That's the job of a marketing plan.

So, let's look at real estate today. For the past few years you didn't need a whole lot of marketing expertise to sell property. There was unbelievable demand from people wanting to invest their hard-earned dollars in property. Just put a sign in the ground and in a few days you'd have an offer -- maybe several offers. That's why there were so many unrepresented sellers in the marketplace, popularly known as FSBO's (short for For Sale By Owner).

Today, it appears that interest in buying real estate has peaked. There are few buyers and many sellers. Investors are leaving the real estate market in favor of other investing opportunities. Properties are sitting unsold for months, prices are dropping or are flat. In this kind of situation, you need the benefits of marketing to let the remaining buyers know that you have property for sale and to give them a reason to come over and look at it.

In Bill Lusher's words, right now you need a program that allows you to sell what you make (real estate) rather than merely making something you can sell (another kind of investment).

Here's something that unrepresented sellers have often failed to consider when they put that little red and white FSBO sign in the front yard.

All sellers are competing for the same buyers. This is an accurate observation that was disclosed to me recently by John Ringlespaugh, or Ringo as his friends call him. Ringo is the head of new agent instruction for Tourtelot Brothers Real Estate in St. Petersburg, Florida. What Ringo is saying is that if you are trying to sell your house on your own, you are competing with all other people trying to sell their houses, and all of you are competing for the same limited number of buyers and dollars. Very astute. Of course, you are right when you make the observation that the competition is based on the price being asked by the seller and is limited only to those potential buyers who have pre-qualified for a mortgage within the property's price range. But sellers are all competing within that price framework for those same limited number of buyers. Within that price framework, it is the seller with the best marketing plan who will attract the most qualified buyers and ultimately sell his property. In fact, I'll add to Ringo's observation that sellers are competing for the buyer's attention, their acceptance, their approval and ultimately, their money.

The seller with the best marketing plan is the seller who will get their attention first -- and first is the only place to be when selling real estate. What you say in the marketing and advertising materials must have a positive impact on gaining buyer acceptance and approval. It is only with acceptance and approval that a buyer will make an offer on your property and pay you the money for the house.

Now, as to the second question from the top of this article, "Don't all real estate people do marketing?"

No, they most certainly do not.

I think in actuality few real estate people do marketing. The reason? They simply don't know how.

Many real estate agents came into the field during the last few years when properties were easy to sell and they did not have to do any marketing to speak of. As a consequence, these "newbies" as they are called in the business, have never had to learn how to do a comprehensive marketing program on behalf of a seller. Nor have they ever experienced a down market like we have today. They followed, and still do follow in many instances, the 4-P's of real estate marketing: Put a sign in the yard, Put an ad in the paper, Put it in the MLS, and Pray that somebody comes along and buys the house. It's sad to say, but for many real estate agents that is the sum total of their marketing abilities.

A real marketing program is an in-depth plan of action designed to call attention to your house from among two key market segments: potential buyers and people who influence the purchasing decisions of potential buyers. As a seller, you must evaluate the written marketing plans of various real estate agents (I suggest talking to three from good companies). Have each of them make a presentation to you about how they intend to sell your house for the most money in today's market, and how their plan will have a positive impact on the two key market segements outlined above. Those that do not have a written plan reflecting the most up-to-date technology and advertising components should be eliminated immediatley. Choose the agent with the most complete plan for selling your house. If your home will sell in excess of $1-million, the agent needs to include an international marketing component in the plan for your house so as to take advantage of the growing demand for U.S. property among foreign investors -- it's a great market!

The question today is not "who has the lowest selling commission", but is "who can sell my house for the highest possible price in a falling market". The answer is most likely going to be the agent who has the best marketing plan.

In today's real estate world, MARKETING RULES!

For more information on real estate, visit my website at www.thestpeterealestatesite.com.

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Many Americans Fear Losing Homes Due To Rising Taxes

The National Association of Realtors has just released its fourth annual National Housing Opportunity Pulse Survey, and the news is frightening.

According to the survery, one out of three Americans lives in fear of losing his home due to rising monthly payments -- especially payments related to taxes. They worry that tax policies will force them to sell their home and buy a less expensive house.

The survey also found that over 42-percent of Americans believe that a lack of affordable housing is a top concern. Other top concerns were high energy costs, cited by 82-percent, and lack of affordable health care, 53-percent. More than two-thirds (68%) of Americans stated that having enough money to pay rent every month is difficult for families in their local area, up 7-percent from last year's survey.

Somebody should pass this info along to the Pinellas County Commission!

For more information on real estate, visit my web site at www.thestpeterealestatesite.com!

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Reduced Commissions Based On Sales Price Is Hogwash!

Wow! I guess I opened up a can of worms.

So, what else is new?

A few weeks ago, I responded to an article in the St. Petersburg Times by Robert J. Bruss. Mr. Bruss' column indicated that if a property is sold for far less than its asking price, the real estate agent should volunteer to cut his commission. I disagree with this position and I categorized it under the descriptive adjective "hogwash".

Since then, I have received a number of e-mails and even a phone call from people who think Mr. Bruss is correct. One of the e-mails came from a real estate agent who works for one of those "discount" brokers -- and we all know how I hold discounters and rate cutters in very low regard. The other communications came from sellers, and I received one of them this morning which is why I feel it necessary to write this little clarification article. It is probably no coincidence that all of the sellers were folks who had property on the market as "for sale by owner".

None of them, even the person with the real estate license, seemed to understand the legalities involved in selling real estate in Florida, nor the business nuances affecting this subject. So, here's why I think cutting the agent's commision based on the selling price is hogwash ...

1. Florida law requires that all offers be presented to the seller. ALL OFFERS, not just the good ones. Not just the ones that are close to the asking price. ALL OFFERS. The listing agent has no control over the amount of the offer. That is the sole responsibility of the buyer. The agent is BOUND BY LAW to present the offer to the seller.

2. The decision rests with the seller. The seller decides if the offer will be accepted, rejected or countered. If the seller decides to accept a low offer, that's his decision. It is not the agent's decision. The agent merely presented the offer, as is required by law. Ultimately, it is the seller who decides if he will accept the offer. If he accepts the low offer, why should the agent be held responsible and be expected to reduce his commission?

3. The agent suffers a loss with a lower than anticipated sales price. The agent's commission is a percentage of the selling price. When the selling price is lower than expected, the agent takes a proportionate loss in income. To take the proportionate share and then reduce the commission further as Mr. Bruss would have agents do is punitive and I know of no bona fide real estate agent who would volunteer to do it. Only weak-kneed amateurs who do not know how to defend their commission would agree to such reduced compensation.

4. The agent has absorbed all the marketing costs. No matter what the selling price, all parties to a transaction need to understand that the agent has invested his personal funds on behalf of the seller to attract potential buyers to the property. Generally, the broker does not reimburse the agent for these outlays on behalf of the seller. The agent needs to get every dollar in commission as a way to offset his expenses associated with the sale. To reduce his commission based on a low selling price is not finacially fair to the agent who worked in good faith to bring in a higher offer. Besides, it was the seller who accepted the low offer, not the agent.

You know, when the real estate market was hot, agents would often obtain multiple offers on properties. These multiple offers usually resulted in properties being sold for prices higher than their asking price. Funny thing, I don't recall any agents wanting to RAISE their commission based on a higher than expected selling price. That kind of bonus compensation wouldn't be fair to the seller, would it? But if a seller accepts a lower than expected selling price, why is it that some people expect the agent to reduce his commission? That doesn't really seem fair either, does it?

Like I said, it's hogwash.

For more real estate information, log on to my web site, www.thestpeterealestatesite.com.

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Take Two Norco Before Reading June Sales Report

When I came home from the hospital following some recent surgery, they gave me a prescription of Norco for the pain.

If you're going to read the sales report for June that follows, I urge you to take some pain medication. This is going to hurt.

As usual, let's first look at the absorption rate for June. Those of you who read this blog regularly already know that the absorption rate is the inventory turn. It is determined by dividing the number of units sold in the month by the total number of listings in the Multiple Listing Service (MLS).

The absorption rate for single family homes for June was 10.5%. That's the lowest this year and the worst for any month since January, 2003 when the rate was 14.4%. By comparison, in June 2005 the absorption rate for single family homes was 59.2%. Quite a drop in one year. Pretty painful, eh?

Well, since we're talking about pain, let's talk about condos. The absorption rate for condos in June 2006 was an agonizing 6.2%. Frankly, that's the worst I've ever seen it. In June 2005 it was a healthy 53.6%.

Walk to the medicine cabinet now and take those two pain pills.

The temperature's rising on single family listings. In June there were 9,153 single family homes on the market. By comparison, in June of 2005 there were only 2,552. If you are trying to sell your house now, you have over three times as much competition today as you did a year ago. Complicating this is the fact that it appears you have fewer buyers (see below). I recommend a double dose of good marketing. It's you're only hope.

Single family sales are fluctuating. There were 959 single family homes sold in June. That's off some from May, but it shows that there are still some buyers out there -- but not nearly as many as there were a year ago. In June 2005 there were 1,461 homes sold. So, if there are buyers out there, how do you find them? That double-dose of marketing I just prescribed is your best hope.

Condos are suffering. I don't know if it's overbuilding or profit-taking or flipping or what, but the condo market is sick. In June there were 5,981 condos on the market as compared to 1,327 in June of 2005. If you bought a condo in the last couple of years and think you can sell it fast and for a big profit today, I'd think again my friend. You may have bought your condo or townhome at the top of the market. Today's condo buyer has his pick of properties and is in a great position to drive a hard bargain. When they say "buyer's market", today's condo market is what they're talking about. As a seller, your only hope may be surgery -- cut your losses and run.

Condo sales have a really weak pulse. Only 372 condos were sold in June 2006. 711 were sold in June 2005. So, the market for condo sales seems to be about half of what it once was. Maybe it's just the season -- condo sales often go flat in the summer. Then again, maybe not. At any rate, condo and townhome sales are in the intensive care unit.

So, now that you've got the news, how are you feeling? Not so hot, eh. That Norco sounds pretty good, doesn't it? But look, let's be optimistic. The real estate market has virtually no place to go but up. It may take some time, so you may have to show some patience. But the patient will improve. I promise. I've seen these cycles before. We'll get through this and feel better soon.

Oh, by the way ... don't forget to visit my website, www.thestpeterealestatesite.com.

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"As Is" Is All The Rage

When I look for property in the Multiple Listing Service and other internet sites, I find that many -- perhaps most -- of the properties are listed for sale in their "as is" condition. This is a selling position that was adopted in recent years during the strong seller's market by people who wanted to maximize their profit by eliminating the costs associated with making repairs to real estate. Buyers were willing to accept this sales ploy because there was so much competition for realtively few available properties. It was a matter of supply and demand.

Today, that strong seller's market is gone, yet some sellers still feel that they can pass off inferior property at high prices. In fact, "as is" seems to be all the rage. What is even more amazing is that apparently many real estate agents actually encourage listing homes in their "as is" condition. These listing agents, most of whom are relatively new to the business and have experience only in the recent seller's market, appear to believe that "as is" is the preferred way to list and sell property. They've even coined a clever little term for the approach: "as is for the seller's convenience".

News Flashes!

Here are two quick news flashes for sellers and agents regarding "as is" listings. "As is" may have been the way to go in a seller's market, but now we're in a buyer's market and people are not so keen on paying top dollar for property that is in need of repair and/or remodeling.

The second little news flash is that there is no such thing as "as is for the seller's convenience". There's "as is" and "as is with right to inspect". But there is no listing category that concerns the seller's convenience, although it sounds nice in a listing presentation because it makes the seller think he's going to increase his net profit by avoiding the costs of repairs. Actually, every professional buyer's agent I know will totally ignore the "seller's convenience" part of the description. Their job is to represent the buyer and they won't give two-cents for the convenience of the seller. If something is substandard, the buyer's agent is going to advise the buyer to demand that the problem be corrected by the seller prior to closing or the buyer will legally cancel the contract.

"As Is" Is Rare

When you really analyze the way property is bought today, a true "as is" sale is a very rare thing. About the only time you can really sell property in "as is" condition is when the purchase is all cash and the buyer is not going to insure the property.

You see, property insurance is required by mortgage companies. Buyers who own their property free and clear, or those who take title without a mortgage, are not obligated to purchase an insurance policy of any type. So, they can go ahead and buy a property with problems in its "as is" condition since they are assuming all the risk.

Most properties, however, are purchased with the aid of a mortgage. If a mortgage is involved, insurance will be required by the mortgage company. Mortgage companies and most insurance companies require that property be appraised and inspected prior to issuing the mortgage and insurance policy. Frequently, mortgage and insurance companies send their own people to do these inspections. If the property needs work or does not measure up for some other reason, they often require that repairs be made prior to issuing the mortgage or insurance policy.

If the insurance company feels that there is something substandard with the property, they can refuse to issue the policy until the matter is corrected. With no insurance policy, the mortgage company will not issue the mortgage. With no mortgage, the buyer likely will not be able to close on the purchase. Unless other wording obligates the buyer to perform, if the buyer can't obtain the mortgage he can cancel the sales contract and have all his escrow refunded.

All sellers should be made aware of this dangerous problem associated with "as is" sales. And there's more danger ahead for sellers ... so keep reading.

A Triple-Edged Sword

"As is" is a kind of triple-edged sword. In addition to the problems involving insurance companies and mortgages, some real estate buyers use the "as is" clauses in standard Florida real estate contracts as a way to leverage lower prices for real estate. Here's how ...

Let's assume the seller and buyer have agreed on a purchase price and the "as is" contract for sale is all signed. The two most commonly used Florida real estate contracts -- the FAR and the FARBAR contracts -- both give the buyer the right to do a property inspection. Both also give the buyer an easy way out of these contracts following those inspections. The FAR contract's "as is" clauses state that if repairs are estimated to be in excess of a certain negotiated amount, the buyer can cancel the contract and have his escrow returned. The FARBAR contract is even easier for the buyer to cancel. It simply states that following the inspection and at the buyer's sole discretion, if the buyer sees anything in the report that he does not like he can cancel and have his escrow returned.

So, let's say the buyer does the inspection. The inspection report lists a bunch of things that are wrong with the property. The buyer uses the "as is" clauses in the contract to get the price lowered by telling the seller that repairs will cost him way more than he anticipated. The buyer will then initiate one of three scenarios:
1. The buyer will threaten to cancel the contract and demand his escrow be returned. In this case the seller generally panics and makes a unilateral offer to lower the price if the buyer will not cancel the purchase contract. (Just what the buyer had in mind all along.)
2. The buyer will demand that the price be re-negotiated due to the higher than expected repair costs, or he'll cancel the contract. In this case the seller will generally agree to a lower price rather than start looking for a new buyer again. (Again, the buyer wins this negotiating tactic.)
3. The buyer will demand that the seller make all the repairs indicated in the report at the sellers expense, or he will cancel the contract. Usually the seller makes the repairs. This, in effect, reduces the buyer's financial exposure on the property since the buyer will not have to lay-out additional funds for repairs after closing. In effect, this lowers the price to the buyer. (This tactic is especially common in sales to buyers who intend to quickly put the house back on the market and sell it, all fixed up, for a profit.)

So much for your "as is" sale. If the mortgage or insurance companies don't make you do the repairs, the buyer probably will. It's that simple. In fact, some really savvy buyers will only use an "as is" contract in purchasing property just so they can tie up the real estate during the inspection period and then use contract law to leverage a lower price from an unsuspecting and inexperienced seller. (There are ways to avoid having the property tied-up during the inspection period, but that's the subject for another article.) This kind of thing happens every day -- and will likely happen even more now that we are in a buyer's market with so many "as is" properties still for sale in which the listing agent and seller do not know the real problems and pitfalls associated with an "as is" contract.

Listing agents and sellers need to keep something in mind. Except in cases where there may be multiple offers on the property, it is the buyer who drives the deal -- even in a seller's market. Why? Because buyers have the MONEY, and the only thing a seller has is a property he no longer wants. Money talks. When the guy with the money says he wants some repairs done, the seller often has little choice but to make them or loose the sale. Sometimes the guy with the money is the buyer, but other times it is an insurance or mortgage company.

As you can see, even though "as is for the seller's convenience" may be all the rage, it's not really a very strong negotiating position and is easy for a good buyer's agent to overcome. If you've listed your home "as is" but your agent did not explain these things to you, you may quickly discover that "as is" is not necessarily "for the seller's convenience".

Oh, by the way ... don't forget to visit my website, www.thestpeterealestatesite.com.

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