Ron Trzcinski

Tech Savvy Buyers Might Be Missing Out

It used to be that real estate agents were the holders of the keys, the information, and everything else related to what was on the realty market.

A potential buyer would go to an agent, tell them what they wanted, and then the agent would try to find something that would meet all of the buyer's needs.

But, along came the internet. More and more information was being loaded onto the internet. One could find the tax records, who had liens on the property and for how much, aerial photos, neighborhood information, interior and exterior photos galore, and so on.

A buyer would call an agent to give them a list of houses that they wanted to see. The role of the agent was changing. The buyer could find the house, they just wanted the agent to walk them through the deal.

This sounds like a winning scenario for buyers and agents. So how may these tech savvy buyers be missing out?

Have you ever had a buyer tell you about a property that they would like to see and then you suggested another similar house in the same area to which they responded that they already knew about that one but were not interested? Their disinterest was related to what they saw on the internet about the house and not on personally seeing the house. What if the agent who listed the house was not tech savvy and had few pictures, that were all poorly taken? How often have you seen more than one picture on a bank owned property? It could be that a very nice house is not being displayed very well if at all on the internet.

Have you ever had a buyer tell you that they knew the value of a house and when questioned as to how they came up with the value they mentioned a website like zillow? Do they think that agents use zillow to perform CMAs or BPOs, or that appraisers use such a site? All too frequently, these automated evaluation sites give misleading numbers, sometimes high and sometimes low.

Have you ever had a buyer tell you that they were already preapproved? Oh yes! When asked what type of loan they typically did not know. Did they understand the implications of any particular type of loan? Usually not. They were approved for FHA (were not aware of the 203k) and were planning to purchase a fixer upper or perhaps they were planning to buy a condo in the complex where they rented, but too many rentals would preclude the use of the FHA loan.

Real estate agents have this knowledge in their heads, or those of their brokers, or office managers and most of their knowledge has not been loaded onto the internet.

Indeed, the internet is a valuable tool for finding information, but people are fooling themselves if they believe that they can find sufficient information by using it alone.

Tax Credit Use

There are some people who would like to purchase a home today. Many of these people can afford to buy, but they are waiting. They are concerned that in this economy that they could lose their job and then be left with a mortgage which they could not afford to pay.

They recognize that prices are very low and that interest rates are also very low, but they are still concerned about maintaining employment. They do not want to end up in foreclosure or out on the street.

While many economists are indicating that the recession has ended, they also are suggesting that the total number of job losses may not end until mid 2010. This economic forecast gives credence to the trepidation that many potential homebuyers are experiencing.

Can the tax credit help them?

Depending upon the price of the home that they purchase, the tax credit of $8,000 could be equal to anywhere from two to eight month's payments, assuming that they purchase a home in the average price range of today's homes.

Generally, it is a good idea to have savings equal to 3 to 6 months of one's expenses readily available in case of a temporary setback, such as a job loss.

If one can be wise in the use of this tax credit, then they can put it aside for the potential job loss. With the economy picking up, it is likely that any unemployment would be for a shorter period of time than has been seen over the last few years. Indeed, this $8,000 could be sufficient to cover a 3 to 6 month period.

But is it a good time to buy?

As already stated, home prices and interest rates are very low. What will happen with home prices and interest rates in the short term?

With more foreclosures and short sales on the horizon, it is possible that home values could still be driven lower. However, there are other conditions which may keep the prices stable. One, the economy is pulling out of its recession meaning among other things that homeowners will be more likely to be able to afford their mortgage payments and avoid foreclosure; two, the people who have purchased over the last 2 to 3 years are in a much stronger position because of the tighter lending requirements; and three, the total number of homeowners who are not in mortgage trouble is close to 96% of all homeowners, which is a group which will strive to keep home values up.

With an increased money supply, it is likely that interest rates will start to go higher. Even if home values drop, mortgage payments will be inversely impacted by these higher rates. So waiting for prices to drop further will be of no value.

Even if prices drop by another 5%, notwithstanding the likely upward movement of interest rates, it still will be financially sound to purchase, because of the tax deduction benefits that can be received from itemizing the interest and property tax portions of a mortgage payment. These will easily offset this potential further depreciation of property values.

When all things are considered in today's real estate market, including the wise use of the available tax credit, this may be the best time to purchase a home in the last decade.

The wrong use

Of course, one can buy now and make an unwise decision for the use of the tax credit and end up going to foreclosure if they find themselves unemployed.

For instance, unless you are otherwise financially strong, it is not a good idea to use the tax credit for a trip to Disney World.

Look at the tax credit as a way of safely purchasing a home at a time when the economy is moving towards recovery and when the homebuying conditions are as good as they may ever be in your lifetime.

Running Out of Town

You are out of town and are visiting Baltimore and you are a runner. Perhaps you run 5 days or more per week, but you do not know the town and you are concerned about your safety. Where and when can you run?

Of course, runners are everywhere so you will not need to take much effort to find them in Baltimore.

If it is the weekend, then you can contact one of the local running clubs that has something happening on almost every Saturday or Sunday or both. In Harford County to the northeast of Baltimore is the RASAC running club. You can find information about their runs at www.rasac.com. From a 5K to a long distance run, they will be able to accommodate you.

In Baltimore County, there is the Baltimore Road Runners Club. Much of their running is done around the beautiful Loch Raven area, which is just north of Baltimore City. They do some road running and some trail running. You can find more information about them at http://www.brrc.com/.

During the week, there are several groups which run within Baltimore City. Depending upon the time of year, some of these groups may run through the Inner Harbor area, through Fort McHenry, down cobblestone streets, or past miles of rowhomes of eclectic architecture. On Monday evenings at around 6, there is the Federal Hill Runners, which meets by the Cross Street Market; on Thursday evenings, there is the Patterson Park / Canton Runners, which meets in the trendy neighborhood of Canton along Boston Street.

If you are an early riser, then you may want to run with the Back on My Feet crowd. They have several groups around town. You can get more information at http://baltimore.backonmyfeet.org/Baltimore-Landing.html.

For other running in the area you might look to the Falls Road Running Store at http://www.baltimorerunning.com/ or to Charm City Run at http://www.charmcityrun.com/.

Keep on Running.

Pay the Commission Up Front

You go on a listing appointment and you state to the Sellers that the commission will be 6%.

Most of the time, the Sellers are so shocked that they sign immediately. Your presentation was so impressive that they were expecting the commission to be much higher. They can't pass up such a great bargain.

Unfortunately, the current market is slow and home values are down. Sellers want to make up for that decreased value any way that they can.

Of course, they will push you to list the house for more than it is worth. If you are persuasive enough, they may do some improvements to the property to increase its value or to put it into its best showing condition.

In the end, many Sellers view the lowering of the commission rate as the easiest way to reduce their costs and hence to increase their net.

Perhaps we will reduce it to some extent, but we can not work for free. We are providing a valuable service and we deserve to be reasonably compensated for our service.

With fewer sales taking place, we need to get every listing that we can. We need to put money into our empty pockets.

So we suggest a compromise. I will lower the rate, if you will pay me a portion of the commission up front.

For example, a 6% commission on a $300,000 house would total to $18,000. We could lower the commission to 4.5% which would yield $13,500 and provide a savings to the Seller of $4,500, and, obviously, reduce our earnings by $4,500. But a portion would be paid up front.

We can see why the Seller would agree to this reduction, but why would the agent agree to it. Once again, obviously, the agent would take a reduction because $13,500, although less than $18,000, is better than nothing.

Before agreeing to reduce our commission, we can, of course, state to the Seller, that while we understand their concern about their loss in the value of their home, that this same loss is having a significant impact on us as well. Let's say for example that this house was just a few short years ago worth $400,000. If they were selling it at that value, then our commission of 6% would total to $24,000, meaning that in today's market we too are feeling the crunch by a whopping 25% reduction of $6,000 in our commission.

If they are still insisting on a lower commission and we are still willing to work for less, then we can talk about them paying a portion of the commission up front, or buying down the rate.

Ask them to pay you $2,000 non-refundable up front in exchange for the lower commission. In this case, they would then owe the balance of $11,500 at settlement. After all, you will be incurring expenses with your advertising of their property and your taking precious time to get and work a contract for them. They get the discount and you get some money in your pocket for these expenses.

If they agree to this, then there is an additional benefit. Since they pay the $2,000 non-refundable up front, they are likely to stick with you as their agent so that they do not lose this $2,000 investment. Just make sure that you want to stick with them.

Remember, things are slow and you need money to pay your bills, to buy food, to stay in your own house.

Naturally, you can calculate the numbers any way that works for you. I was just providing example numbers.

Some Thoughts on a Growing Economy

Before I mention the economy, let me start with a personal story.

My family, Mom and Dad, at first, started in a one bedroom apartment close to their childhood homes. It did not take long and my brother was born. It was time to start looking for a bigger place. At the time, Dad did not believe in buying unless he had the money and, indeed, my parents had saved enough to purchase a new 3 bedroom rowhouse. Soon after moving in to their new place my sister was born. Things were looking nice for my spoiled older siblings as they each had their own rooms, but then sister number two came along so move over big sis; this is my room too. A short while later I came, got kicked out of the crib, and moved in with my big brother. It was a double bed for two kids but it did not stop him from yelling "Hey stop kicking me." Finally the fifth of us had arrived. Fortunately, we could now afford to move to a four bedroom house. Things were looking good. However, eventually, my brother moved to a place of his own, my sister, although in school was traveling the world, then my next sister, and then me all left the nest. Of course, this was great for my little sister who now had three bedrooms all to herself.

We can stop here. Everyone knows the progression of a family. How does this compare to the economy?

At first we were a small country, but we grew. A plentiful land allowed the early families to quickly grow. There was enough for new families to immigrate to our land. A nation had plenty for many and it grew big, fast, and strong. Yes, it went in cycles, but, generally speaking, our country and its economy experienced a copious expansion.

And now the economy has begun to stutter; economic pundits are befuddled as to how to start it up again, doomsayers are abundant, with the president of the country being the biggest among the crowd.

Is the economy like the family that grows but eventually dies off? Has our country run its normal course of life? Are we hopelessly clinging to life support systems created by our government? Have we come to the end?

Let's go back to the family. Yes, Dad did die, but his children have had children, and theirs have had some more. The education level, the knowledge, the experience, and the aspirations of these new generations far exceed those of Mom and Dad. New horizons are visible, which were never seen in the past. It seems more likely that the natural course of things is to grow and improve.

Many people have basically blamed the current setbacks in our economy on the so called housing crisis and its supposed corresponding credit crunch. Is there more to it than this? What else could be happening?

Remember prior to the financial setbacks of today some other major concerns, such as the following:

• The baby boomer population was aging and was moving into retirement. What does this mean? Fewer people in the job market; people making less money; less money being invested in savings; more money being removed from savings. All things which are counter to growing an economy.

• More jobs being transferred out of the country. India was taking computer programming jobs and customer service jobs. Other countries were taking manufacturing jobs that used to be done in America. What does this mean? Fewer Americans were working; less money was available to purchase products; less money was available to invest.

• Illegal immigrants were taking jobs in the US, while US citizens were going onto the unemployment rolls. These illegal workers were not paying taxes, were sending money back home to their families in other countries, and were investing very little in US goods. What does this mean? Fewer legitimate workers, less money going into the economy, and more money flowing out of the economy and the country.

• An educational system that was producing far too many incompetent people for today's high technology workforce requirements. Many jobs were going to people who were more sufficiently educated in other countries, with the jobs frequently going to those countries. What does this mean? Fewer employed people, more people seeking government assistance, and, again, more money flowing out of the country.

It is true, that the problems in the housing market have caused some of the current economic concerns, but let's be realistic; they are far from the only reason for our situation today. Mortgages only feed the economy with so much of its monetary fuel; there are many other sources which normally feed the economy. The foreclosure rate in good times was close to 4.0% to 4.5%, so while an increase to 6.0% is not good, it is not going to be, by itself, enough to cause a severe collapse of the economy.

We should not let one issue blind us from the many issues which make our economy so complicated.

So what can we do?

Remember in the story of my family, how as we grew, me and my siblings were at first spoiled, then sharing the same resources, but in the end growing well beyond our little 3 bedroom rowhouse.

In many of the economic and social concerns, which I have stated above, there is an underlying theme. We used to be spoiled; the world economy was almost synonymous with the United States economy. We now unquestionably have a world economy, which can not be overlooked by any given country, even one as big and as strong as the United States. The Country should not be looking for isolationist ideas, but rather, it should be leading the way out of it's and everyone else's 3 bedroom rowhouses.

When a true attitude of "Yes we can" arises, then yes we will, in the United States and around the world, move to prosperity for all.