What I can add is, It is a pleasure to know you Matthew. Like you, I am honored to be amongst the writers here and while I often struggle with content, I hope to never stoop to the level of discrediting anothers success, just because it is not my way.

Happy New Year!

I have to say that one of the things that I learned in coaching different agents is that there is no ‘right way’ to succeed in this business. It’s the responsibility of each agent to define what they love doing and then, most importantly, DO IT.

Not everyone needs to be operating in the 2.0 world and to knock one another only diminishes each of us and the profession as a whole.

This post is exactly what we see in you in almost everything you do, and exactly why you’re here and will be for as long as you’ll have us.

A good friend told me I needed to make time this holiday weekend to read this and he was right- I’ve now read it three times.

I agree that it’s local and specific to the consumer. Would you mind sharing what questions you think are important for agents to ask a potential buyer to see if they would be a good match for you and your market?

It is always risky to project any movement in price, up or down, so I would suggest that NOT be part of a real estate professional’s job unless they are prescient

Take a look at the graph on this post. I don’t have to be prescient, or even a NAR economist, to see how that is going to impact market values in my neck of the woods.

@Bill, you have your priorities straight about investment re. However, I disagree with you about buying a personal residence. Price does matter, acutely. Since most people only accumulate savings in their homes, buying property at bubble prices severly curtails that. In addition most people don’t live lives that have guarantees around how long they will live in any particular area. The fact is renting for many people does make financial sense.
As far as blame, no one said it was fair. My point is that some pretty astute people are aware that the industry has been promoting “its always a good time to purchase re” instead of “let us help you make a smart financial decision with your re purchase.” RE industry is not immune from the changing environment around all things financial nor from the opening up of information.

I strongly believe in real estate as the best middle class investment around going forward, but hook my clients up with brokers/realtors that I know are willing to say “now is not the time” or “this is not the place, right now.”

And if I was to put one of my pieces of real estate up for sale, the only reason I would use a full service realtor is because of friendship and professional connections. And two out of the three neighbors I spoke about earlier will only go the FSBO route with paying a small fee for MSL listing! Maybe, my neighborhood is strange (ok I know it is), but gotta wonder if what I am hearing and thinking is not what is going on in the heads of many more????

As far as someone owning their home, it needs to start from a point of economic sense, which does not revolve around fluctuations in sale price, but around how the property fits the needs of the buyer, whether they can afford to carry the debt, and what their long term plans are.

In terms of buying investment properties, if the purchase is made based upon sound investment principals, then the market is not important, the investment is. And unlike to other investments you discuss, each property is its own price point – there is no uniform pricing. I actively invest in real estate and have for many years, and found it to be exceptionally rewarding financially, And I am still buying, but my investment strategy is always long term , and relies less upon appreciation than it does the other three basic returns of a real estate investment (I’ll write a post about that since it takes too long to go into here)Bottom line, there are some great deals out there.

As far as your comments about full service vs. limited service brokerages and ethics, I’m confused. In what world would your ethics change based upon a business model? As an Industry (and forgive me if I get preachy about this, but I spend a lot of time working in this arena) we are always working towards improving our members understanding of business etiquette and ethics, and hold them responsible to a code of ethics that has been in place for 95 years. There is a big difference between a consumer being upset because an agent encouraged them to buy before a major market change, and the agent doing something unethical. After all if you buy a stock, you may be upset with your stock broker, but was he unethical to advise you to buy the stock? Or was he just misinformed, or did something out of his control happen? Though its only human to want to blame someone, is that the fault of the person you blame, or just a personal weakness?

As far as books appearing telling people how to bypass real estate professionals, I know from my own experience that they have been around, in substantial quantity for the past 37 years and longer, so I don’t see that as an issue of today’s market – especially when the largest majority of buyers and sellers choose to use a real estate professional. Heck I did when I bought my property on the West Coast- and he made the process work well for me and helped me find a property that suited my needs. Was it his fault that property values in the area have gone down over the last year? No more then it is the fault of my CFP that my IRAs have lost value in that same period – I wouldn’t give either of them credit for gains in the market, so I certainly won’t hold them responsible for any losses. (Though I do have to point out that the CFP actually claims to be responsible for the gains, unlike most real estate professionals). And as far as my place in LA goes, I’m confident that over the long term, as in every price reversal I’ve seen in the past 37 years, eventually it will recover. The property is sound, desirable and in a great location. All solid basics in any real estate purchase. And if not, this was the place I wanted, where I wanted it, and at a price I could afford, so its not as terrible as it might have been if I bought something I couldn’t afford, and didn’t want or need, in a speculative attempt to profit serendipitously.
Great points though, and thanks for the conversation.

@Dave – a man after my own heart. I tell buyers that I am going to assume they’ll call me back in 3 years and tell me they need to sell and be out of dodge in 60-90 days, so because I dont want to be in a position 3 years down the road where I have to tell them why that would be a difficult thing to do, I’m going to give them all the potential issues upfront. Sometimes that means issues inherent with the property and other times it is more about external factors. That would include economics.

I ask every buyer why they want to buy today vs tomorrow. Then I make them work the numbers backwards, starting with a 5-6% cost of sale. They are already down and need the market to not only stop dropping, but level off and go up in the next two years for them to break even.

With a 5 year window, we know in this market that the projections are at least another 10% down, with some estimates higher. Just taking the conservative numbers, We are now down 15-16% in two years. That leaves 3 years to see 15% appreciation. Most don’t think that will happen. A safe bet is at least 7 years. It is now up to them to decide. Some still go forward, and others do not. What does happen in every case is a thank you. As a result, I have received several referrals from these non-clients. We close one in January where the buyer is the boss of a young guy I talked out of buying. He is looking to retire in this house, so its long term.

The key here, as always, is knowing your market and getting your facts straight. I see agents in my area blog endlessly about buying today because rates are low, but if you want a decent school district and one of the more desirable areas, conforming rates don’t apply and there is close to a 2% spread in jumbo vs conforming. The thing is they have been saying the same thing for 2 years now and are no longer credible.

will the real estate industry morph into an industry where a much smaller number of realtors make a good living giving good advice in a true fiduciary relationship, including advice on macro-economic factors,…

Dave, I’m betting on it.

And if this is the future, how does a realtor change their practice to become the former, rather than the later?

Great question that brings the discussion full circle. Be more than proficient. Focus on education and learn as much as you can about all aspects of the industry and the factors that influence and drive it. Economics and the law are crucial aspects of this biz that will become even more important as Washington and our individual state houses go on a legislation and regulation binge like we haven’t seen in our lifetimes. Broaden your reading material beyond AR and the RE blogging world. Don’t look at news as negative or positive, but as information that leads to knowledge that will take you beyond proficiency to expertise. A RE license is easy to get, so licensees are easy to find. Expertise is not. And that is the value added proposition the consumer will seek out.

The rational point for entry into the real estate market is when the cost of rent versus ownership are similiar and when investors can cash flow a home with a 20% down payment. I know some neighbors who are paying $2200 on their mortgage,taxes, insurance on a home they could rent for half that. Throw $1K/month into even a savings account for a while and you have real money! Add in the maintenance cost of ownership and you really have some savings!
Now the cost of ownership has probably dropped to around $1500/month so there is still a couple of hundred of dollars cost to ownership over renting, but if re starts to appreciate in the next couple of years, you can see some long term benefit. Add in the emotional satisfaction of “owning your own home” (thanks to the re industry and media for that!) and you have the possibilities of a decent buying time once the veil of fear is lifted.

But, there is a strong undercurrent of distrust toward the re brokers out there. If they are simply transaction technicians then they are seriously overpaid (this is not me saying this). And since they were trying to sell folks on real estate at the height of overvaluation, they really don’t have their customers best interest in mind nor do they deserve high wages that a fiduciary might command. I have three neighbors, very different people, all tell me this in the last couple of months. All three have had their homes for sell at sometime over the last year/ two with a full service broker. Maybe the re industry is strong enough to withstand this challenge, but I wouldn’t be surprised if we don’t see a very different sales/marketing strategy emerge strongly that tries to bypass the realtor/broker stranglehold on re sales. The tradional stock brokerage of yesterday thought they had a monopoly through licensing and control of the information too! Now anyone with a computer and access to the internet can be a do-it-yourselfer stock trader for a small price! How long before books appear telling people why and how to bypass the traditional broker/realtor? I’m just asking some questions around this area, about how to position yourself if this indeed becomes a reality?

No, but your stockbroker can call you with maintenance calls if the equity in your portfolio is below margin levels. Made those calls for two years while I worked at Schwab.

Agree wholeheartedly that there’s a rational and emotional component to things … I’ve even written about it here on AG. But supply/demand still wins. If there’s no demand because “no one should buy” then the recovery’s not going to happen.

Incidentally, you’re hitting on what I see as one of the interesting storylines of the new presidency. People are so smitten with Obama as a symbol of hope and other such emotional labels, fundamentals may need to change very little for perceptions to change a great deal.

When someone asks me that question, I have to ask them 10 questions for us to come to a joint decision on whether it’s a good time.

If they have a house to sell somewhere else, the answer is almost always no.

If they have the resources, are planning to be in the home for a long time, love the home, can afford it, and are OK if the market drops a little more, then it probably is a good time to buy.

As Realtors, it doesn’t make sense to provide blanket cheerleading statements like, “It’s a great time to buy.” Real estate is a personal transaction and needs to be treated that way.

Thanks for a terrific post.

“There seems to be an overwhelming tendency in the re.net to alienate those agents who don’t do things the way that I do them.”

Not on twitter? You get branded as a neaderthal

Don’t follow every real estate blog and attend every social media conference? Well, you are not keeping up and will be made irrelevant soon.

Require registration on your site to view listings? You obviously don’t know (like we do) what consumers want.

It does seem often that “re.net” practioners do spend an inordinate amount of time grandstanding in front of their peers about their page ranks, SERPs or how “transparent”, “2.0″ or number of followers they have on twitter – just to show that they “get it”

Not often enought do I see the “re.net” adequately discuss how effective they are in satisfying their customers and selling homes.

No amonunt of blogging or twittering can make a person a great realtor.

I would think that Education, not just about social media, as well as focus on customers and the nuts and bolts of real estate practice deserve more attention – in the blogosphere and more importantly in real life.

I’m with you for the most part. However, I’ve listened to more than a few buyers who if they lied and cheated, may convince a crooked lender to also lie and cheat to give them a loan that once the ARM adjusts they could NEVER have repaid… I’ve walked away from the buyers.

In this market, these types of buyers should not be buying, because they will not be able to sell the property when they really need to. Residential Real Estate is a good investment – long term. Fiscally responsible buyers with intentions to say in the home for at least five years should be buying.

Now here is my point; when the market goes back to equilibrium will the market continue to mainly use full service brokers or will they say to themselves, realtors won’t tell me or they are not capable of telling me when a good time to buy is, so I can’t trust them. And if history of other industries is any guideline, then you will see a solid migration aways from full service brokers to merely transaction technicians which will get cheaper and cheaper. Stocks, bonds, mutual funds, options, etc. have all gone through this. Is real estate next?

I think my business would be much better now if I had encouraged all those first-time buyers in 2006-2007 to hold off. Even if they didn’t heed my advice, they would be much more likely to tell other people about my correct advice, marking me as someone who was a truth teller or a true fiduciary!

And I guess my question is, will the real estate industry morph into an industry where a much smaller number of realtors make a good living giving good advice in a true fiduciary relationship, including advice on macro-economic factors, and then transaction technicians who make much less money and offer only to guide the transaction through the process? And if this is the future, how does a realtor change their practice to become the former, rather than the later?

Now we look at the data for rent vs own. If they are ONLY here 3 years it might be best to rent and we tell them that.

If they have dogs, it is not easy to rent, so in that case it is better to buy as they are not willing to give up their dog(s) and want a house and yard.

It is totally individual.

If you’re struggling with the morality of representing buyers who shouldn’t be buying I know that most of applaud you for your concern. If it’s truly a bad decision for your client to buy in their situation, I agree that you should tell them that. However, they are still adults and should be able to make their own decisions. You should voice caution….but not tackle them before they sign the contract. I’ve had several clients buy homes that I didn’t think was a good idea and then sold them for a profit that I never would have thought they could get.

But the real point is that to tell people to purchase any asset, when you know the asset price is way above where it historically should be, is not good advice for the client. So maybe this year, after a couple of years of massive devaluation of real estate, it might be good advice, but it certainly wasn’t in 2006 (in Florida, California, etc.). And this was the point I was trying to bring into discussion. If the real estate industry, and more specifically, broker/agents aren’t capable of helping clients make good buying decisions then you delegate yourselves to merely being transaction technicians. Then you are surely putting your livelihood at risk in my opinion! Twenty years ago if you wanted to buy stock, you needed to go to a full service broker and pay big $$$. Now you can trade stocks at less than $10/transaction. Don’t think it can happen to you?
Real estate a long term investment, yep! If you bought at the peak of the market in my area you would have lost 35% in value and even if real estate appreciation goes back to its historic rate of 5% it will take you over 10 years to get even, not counting mortgage interest, taxes, insurance, 10 years worth of maintenance, etc. When you add all that in it might take you 20 years to get even. Long term, yep!
The point is that there are a significant, although small sector of home owners that will probably never trust the real estate market nor realtors again. Distrust is not a good thing for the industryand I only wanted to see if anyone here had some ideas about how to avoid this in the future.