Steve Crossland - Austin TX Real Estate

Imagine your grandmother needed to be escorted through a dangerous part of town, and you had to select from available bodyguards. One is a White Belt, a part timer with very little experience, but he returned your call in less than 10 minutes.

Another is a Black Belt with 20 years experience and hundreds of successful missions. Who would you pick for this important assignment? You’d go with the experienced veteran with the proven track record of success, right?

What if your child needed a special surgery, and you wanted to interview surgeons? What sort of criteria would you look for? What sort of questions would you ask? You’d probably ask “how many of these procedures have you completed, how long have you been doing it and what is your success rate?”, right?

Make up your own scenarios – you need an attorney to defend you against a frivolous lawsuit, or an accountant to assist with an IRS audit, or a tree person to work on your 300+ year old trophy oaks. Would you hire newbies with no track record of success? Probably not.

Buying or selling a home is an extremely important financial event, with many variables and 100’s of different ways that things can go wrong, yet the real estate industry, for whatever reason, is not one in which the customer typically uses a strong selection process when looking for professional help. Why is that?

In a real estate seminar I attended recently it was stated to us Realtors, “if you’re not returning your phone message and emails in less than 10 minutes, you’re losing business. 70% of buyers and sellers go with the first agent to respond, so you need to make sure you’re that agent”.

Crap. I’m still “old school” and think that it’s ok to return a non-urgent call within one business day, though I’m usually much faster. But I don’t go for the 10 minute rule. I don’t live my life in permanent hyper-response mode. I’d go insane.

So what would be better selection criteria that would be easy for consumers to understand and relate to? What if Realtors had a ranking system, such as in martial arts, where one earns progressively higher belt color rankings as their experience and competence grows?

And what if we had to wear these belts to listing appointments. Might that change things a bit for agents and the customer as well?

Brand new Realtors, fresh out of real estate school and passing their test, would have to wear a White Belt, signifying to all that they’ve never closed a real estate transaction and they’re brand new. After one or two completed deals, they could be promoted to Yellow Belt, and so on. Of course Realtors like me and Sylvia, with 20 years experience and hundreds of successful transactions would be Black Belts, as would our peers who have paid the same dues and gained the same level of experience.

In the martial arts world, it takes about 6 years to achieve Black Belt status, depending on the discipline being studied. To become a Master Plumber in Texas takes about 7 years. I’m not sure about Electricians, or HVAC specialists, but there are many examples in life of individuals having to work long and hard before achieving a status that is recognized as being a “master” level.

Yet in real estate, if you can pass the test and return your phone calls and/or emails in less than 5 minutes, that will be the main selection criteria used by the majority of consumers who are looking for help. That’s it! Be the first one to call back and you might have your first listing. Is that stupid or what?

What’s really unfair about this is that when one of these White Belts Realtors screws up a deal big time, the entire industry gets a bad rap but nobody ever asks the person telling everyone about his lousy Realtor what sort of questions were asked before hiring that Realtor. They never scrutinize the hiring process that resulted in the hiring of the deficient Realtor.

We run into agents regularly who have no business being in the real estate business. They don’t know what they’re doing. Yet someone hired them anyway, using criteria and rationale that would never be used to hire equally important advisors or councilors in other industries. I guess real estate is just weird that way.

So, next time you’re interviewing Realtors, talk to more than one. Not just the one who you reached first. And ask them what belt they are. Make them tell you, if their real estate experience were equated with martial arts, what “belt” they’d be. Why pay the same fees to a White Belt Realtor that you would for a Black Belt Realtor?

Better yet, here are some sample questions:

1) How many homes have you sold in the past 12 months?

2) How long have you been selling homes?

3) What is your success rate? (Percentage of listings that actually sell)

I could write a longer list, but these three questions alone would provide enough insight to help most customers get started with a proper selection process.

Sylvia and I are excited to announce that, as of today, we have reverted back to the business structure under which we operated from 1993 through 2004 as Crossland Real Estate. Sylvia is Broker and Head Honcho and I just do what she tells me. We are no longer with the Southwest Market Center of Keller Williams Austin. We are once again an independent, home grown Austin real estate company.

It’s been a great 4 years at Keller Williams and, as I was telling agents at the office today, I don’t believe that Sylvia and I would be the caliber of Realtors we’ve become had we not done our 4 year stint at Keller Williams.

The Southwest Market Center in Austin is the original, first Keller Williams office started by Gary Keller in the 1980s. It is the #1 real estate office in the world, on many different metrics, including number of sales and number of agents. It’s considered the flagship office of Keller Williams – the mother ship – and is the frequent host of tours for other Keller Williams market center staff from around the country who want to come see how we do it here in Austin.

Sylvia and I have enjoyed being a part of this amazing company and this office, and we especially enjoyed the honor of serving on the ALC (Agent Leadership Council) for the past two years, which is the body of top producing agents that runs the Southwest Market Center. I feel like, even though we both had a lot of experience as Realtors before we joined Keller Williams in 2005, we never would have received the type of training and exposure to ideas that we experienced at Keller Williams had we remained Mom and Pop forever and not ventured out to see what it would be like in a different environment.

So why the move? Why switch?

We’re tired, man. Frankly, it’s hard work operating at the level we’ve been at for the past few years. Non-Realtors may not know the real estate terminology of “Production”, or “Closed Volume”, or “Gross Commission Sales” (GCI), but Sylvia and I had what I think will be our career peak year last year in 2008, during a slow market, with just under $10M in closed transactions. That’s not anywhere close to what some of the elite, high production agents achieve across the U.S., but it’s a lot of sales, roughly 4 closings a month. It takes a lot of effort and energy to do that. We’re tired and want to slow down.

So, the plan is to continue building our investment portfolio of managed properties, and focus more on listings and less on buyers. That doesn’t mean we won’t help buyers – we love working with buyers – but we will scale back on the number of buyers we work with and we’ll be more picky about who we take on and less tolerant of tire kickers. When we’re running full tilt, we can each handle 5 to 10 buyers at a time. We’ll probably scale back to 1 or 2 at a time and refer the overflow leads to other agents.

The buyer side of the real estate business is at least twice as demanding as the listing side, especially the 4 to 6 hour days in the car in 100+ degree heat, in and out of houses. Only about 1 of 5 buyers that engage us end up buying, which is why we have to run so many at a time. And that’s actually a better ratio than most Realtors achieve. We’re pretty picky already, but still, it’s a numbers business and, as all productive Realtors know, you have to work your way through a lot of uncompensated time, effort and expense to get to the next buyer closing. And you unfortunately have to know when to cut people loose and when to remain patient. It’s not always an easy call, but you have to be able to make the call anyway.

So, from a strictly business decision standpoint, the time freed up by working with fewer buyers can be reallocated to handling more property management accounts and seeking more sales listings. We still run a fairly small boutique portfolio of managed properties, about 35 at present. That’s compared to almost 250 I handled in the early 2000s. We won’t grow to 250 “doors” again, but a target portfolio of about 75 is reasonably easy to handle and provides a more predictable and stable return on time invested than does an equal amount of time chasing down buyer leads and showing houses to people who aren’t really sure they even want to buy.

Finally, on a more personal note, we feel like we were getting sucked up into a more expensive lifestyle than we really need or desire. We both come from very frugal, low budget roots. My father was a tightwad Navy Officer who raised our family in a tiny, cheap house even though he could have afforded better. Sylvia’s mother was an artist and college art professor, so she didn’t grow up with lavish things either. As a young newlywed couple, Sylvia and I scraped by as I worked my way through college. I didn’t even own a vehicle less than 10 years old until I was 35 – not because I couldn’t buy one, but because I thought new cars were a waste of money. I still do, but I’ve bought four in a row over the past 11 years, justifying it by saying “I’m a Realtor, I need a nice newer car”. Yeah, I need a clean decent car, but not a new one every few years.

We know how to live cheap, save and build wealth, mostly through investing in rental properties, yet an increasing amount of the fruits our professional effort is going toward supporting a lifestyle that’s out of sync with our basic frugal values or needs. Think of us as “Cheapskates Gone Wild”.

It’s weird too how spending more just creeps up. How the ability to afford stuff creates a desire and an urge to have the stuff. In a reverse logic sort of way, which might not make sense to some, it’s more profitable to earn less in America, at a certain point. There is a cutoff at which, for most people, additional earnings result in a higher proportional increase in consumption and spending. It’s like a law of nature that takes over or something. Anyway, we’ll have more left over money, discretionary income, on half the revenue we’ve been generating. I know it sounds crazy, but it’s just how it works.

Also, I nearly got choked up the other day as I realized we have less than two years remaining living as a family of four. Our oldest daughter will be off to college in two years. My youngest will attend all 4 years of high school with no big sister at home, and there will then be just three of us. Four years later, it will be just me and Sylvia as our youngest heads to college also. Then what? Retire?

We don’t want to look back on these next 6 years and say “well, we finally cracked the $15M threshold in closed sales but hardly ever saw the kids”. No, that’s not what we want to remember as our primary focus or achievement.

So we’re setting aside more time for family and less time and effort toward selling real estate or trying to maintain ourselves as “top” agents in our office. And that’s very doable by simply getting back to basic living and the simple no frills business philosophy that we started with in the early 1990s. And it doesn’t mean your referrals and repeat business will receive anything less with regard to the quality of service we provide. You’ll just be one of fewer clients that we’re juggling.

Finally, I look forward to writing more later, in another blog, about what it looks like to be scaling back a fairly big and costly real estate business setup to something equally as effective but far less difficult to manage. We’ve now operated at both ends of the spectrum, and all points in between, as we’ve started, bought, sold, expanded, downsized and run our real estate business in various forms and setups over the past nearly 20 years.

We’re at present scaling down from spending more than $30K over the past 12 months with KW on commission splits ($18K), office rent ($6K), admin fees, copy fees, phones, etc. to a $30 per month mailbox at a postal shipping store and working again out of a home office and meeting clients at Starbucks, or wherever.

How’s that going to work?

Actually, pretty darn well. None of our listing clients ever even came to our office. Buyers did, often, but that can be worked around fairly easily, thanks to Starbucks, WiFi and something called a Laptop. The “officeless” way of doing business and the amazing tools available today make possible all sorts of things, and I look forward to writing more about the tools and services we use as Realtors that make having an expensive brick and mortar office, for us, now obsolete.

It's called a "buyer's market" because real estate buyers have a market advantage over sellers. The buyer advantage is a result of high inventory and lower demand. Buyers have a lot of Austin homes to pick from, and there are more homes for sale than there are buyers to buy them. This means Austin buyers should be getting great deals, right? Wrong. Many don't.

Many buyers give away their buyer's market advantage in favor of indulging a highly particular and restrictive set of search criteria. In other words, some buyers are looking for the "perfect" house, and once they find it, they are not willing to walk away even if the seller stubbornly holds out for a higher price than market conditions should bring.

The buyer doesn't have a strong #2 or #3 choice to move on to. Instead of enjoying the benefits of an ample selection of homes, some buyers create their own artificial shortage of homes by ruling out adequate candidate properties, and thus limiting their options, and thus their negotiating leverage. So long buyer's market, for those buyers.

Many sellers might be saying, "yeah, well bring me one of them there picky buyers because we're priced too high and we need to get lucky". Well, some of you will. Not many of you, but enough to keep the others hoping.

Here's the thing if you're a buyer in Austin....

In this type of real estate market - a buyer's market - you ought not be shopping for the perfect home, but the perfect seller. You want a motivated seller ready to be flexible on price, one who actually wants to sell the house versus a seller who is just trying the market on for size. Our buyers who are willing to walk away from two or three deals before they find the really motivated seller are the ones getting the really good deals. To accomplish that, you have to have the pragmatic, low emotion mindset of an investor. Otherwise, in this market, if you pay top dollar for your "perfect" home, you are upside down the day you close because you paid too much.

Our investors consistently obtain much better purchase prices than our owner-occupant buyers. There are exceptions, of course, but over time, this is what we experience. The reason is simple. I can show an investor a set of 15 homes and we'll find 5 or 6 that are suitable candidate properties worthy of an offer. If the first seller isn't willing to be flexible, we'll move on to the second, third or fourth choice. The investor is not emotionally attached to a particular home, but is focused on obtaining a below market purchase price.

Out of the same set of 15 homes, an owner-occupant buyer might find one or two possibilities, but will still want to keep looking. The typical owner-occupant buyer isn't always focused on value, but on emotional satisfaction. This isn't necessarily the wrong approach, and perhaps "picky buyer" could be termed a more forgiving "lifestyle buyer", but either way, it's not a wealth building strategy. It would be like passing up a superior stock pick because you don't like the company's logo.

To pass up better deals in favor of cosmetic design preferences of no financial consequence is an emotional approach, not a financial decision.

So, should buyers throw their personal preferences out the window and just go out an low-ball 6 offers until they find the best deal? Of course not. But what we find is, at the end of the day, the same three criteria of price, location and quality/size are the dominant decision items. Each buyer, whether you consciously think of it this way or not, has a set of Must Have, Should Have, and Could Have preferences.

Where people go astray is in allowing the "should haves" or the "could haves" to rule out otherwise suitable homes.

For example, if a buyer loves almost everything about a particular home but says "I hate these tile floors", we can cure that problem with a dollar amount. It costs about $1.50 per square foot to demo/remove ceramic floor tile, and about $5 to $7 per square foot to install very good quality wood flooring. So if we're talking about 700 square feet of ugly tile, you convert that to $5,250 and factor it into the offer you make, but you don't rule out the home and keep looking just because of the tile, as most buyers are apt to do.

And let's think for a moment about what we do in a home. I'll use myself as an example. First, I wake up in a warm bed next to a wife of 18 years who loves me. I stand up upon carpet, walk into a master bathroom where the plumbing works, take a hot shower and get dressed and ready for my day. The color of the carpet, tile, shower fixtures, etc. don't really impact my life. Yes, I like my house, and find it aesthetically pleasing, but really, does the color of my bathroom counter really matter to my happiness and ability to get up and get dressed?

Next, I go into a kitchen that has food, and I cook a hot breakfast for me, my wife and two beautiful kids. I do this every morning, seven days a week. And I could and would do it, and the food would taste the same, and our breakfast table chatter would be the same, no matter the layout of my kitchen, the color of the granite, whether the floor is wood or tile. None of that really matters, does it? Is life really about the designer aspects of our homes? Or is it something else?

Next I leave the home, driving one or both kids to school, and I often don't return to the home for 8 or 10 hours. And when I do, as in the morning routine, my life and happiness are not determined by the cosmetic features or colors of my home. Sorry, that stuff just doesn't matter that much. And then I spend another 8 hours sleeping, during which time I am unaware of and oblivious to the quality or appearance of anything other than my bed.

But to buyers looking at homes, you'd think the cosmetics and nuances of the layout and floor plan would be life determining factors. That off-shade tile will most certainly rob the buyer of all future happiness, so we better keep looking, right?

When my family moved to San Diego in 1966, I was 4 years old. My mom tells me she and my father bought the one and only home they looked at. I was stunned to hear this a few years ago when I asked her "how many homes did you and Dad look at when you bought the house in San Diego?". She said that one looked like “it would do”, and they already had some Navy friends living in the neighborhood who had recommended they buy there. That was the extent of their house hunting process.

Near the end of my Dad's life a few years ago, as he was fading into Alzheimers, and we talked about life and love, he never did say "I wish we would have looked at more houses before we bought that one in San Diego back in 1966". The one he owned for 26 years, that was 900 square feet, and in which he raised two sons.

Folks, the petty stuff that must of us obsess on in life (and I'm as guilty as the next person sometimes) just doesn't matter. It doesn't matter at all. Honestly, it doesn't.

Any home can be filled with love and happiness. Any home can house smart, happy kids who grow up to be great people. Ay home can be a great place for grand kids to come visit and ride on Grandpa's shoulders. Those outcomes won't be determined by the color of the tile, paint or formica. Nor whether you have gutters or a covered patio or bronze doorknobs. Your life and hapiness will be determined by the quality of your time spent together. You don’t need a McMansion or a show place to live happy lives. Yes, you want a house you like, but keep it in perspective and in the context of your financial and family goals.

Now, go find a perfectly adequate house for a great price!

December 22, 2008

The sales volume in Austin fell of a cliff for November, with only 914 sales of single family homes. That represents a 43% decline in the number of homes sold. The number of "Not Solds" (expired or withdrawn) took a big jump also, to 62% of all listings that departed the Austin MLS in November. If you remember last month's market update, I predicted the Not Solds will hit 70% in December 2008. November stats haven't changed my mind.

Let's look at the breakdown of Austin single family home sales for November 2008:

· Number of homes sold is down 43% (was down 28% last month) from 1,594 Nov 2007 to 914 Nov 2008.

· Average list prices in Austin were down 5.29% over the same month last year to $250,609. This means sellers/agent are doing a better job of pricing the home correctly out of the gate.

· Average sold prices in Austin were down 6.17% over the same month last year to $238,072 from $253,718 a year ago. So, list prices are down 5% but sold prices are down 6%, which tells me sellers are still chasing the market down.

· Median sold price was down 1.87% to $185,000. Last year in Nov it was $188,527. Median prices had been holding their own each month this year, so the downturn in this particular metric is something new.

· Average List to Sold price ratio is 95.00%, down from 95.89% the same month last year, again demonstrating that sellers are still chasing the market down.

· Avg sold price per square foot is down 7.41% to $109 compared to $118 a year ago in November. This is a huge drop.

· Avg days on market is up 12 days (18.75%) from 64 last year to 76 this November.

· Median days on market is up 11 days (24%) from 45 days last year to 56 this year.

• Number of "Not Sold" (exp or withdrawn) is up 43% over the same month last year, to 63% of all removed listings compared to 46% for the same month last year.

None of this is favorable if what we want is a normal, rising market, but in the context of elswhere in the country, it's actually pretty good.

The stats outlined above are shown in the chart below.

So, are these grim numbers cause for alarm? Not at all, and here's why.

October 2008, when the offers for Nov 2008 closings were written, was dominated by continued financial spiral and economic uncertainty. It's not suprising that buyers hunkered down. Since Oct 2008 was anything but "normal", it's no surprise that Nov 2008 closings are down. I expect Dec will be just as slow comparatively, though the interest rate drops seem to be bringing some buyers out of the woodwork. And the Median sold price in Austin is still up 3% year to date over last year while the average sold price is down only 1%.

Let's take a look at Austin's Year to date sales stats:

So, while Nov looks pretty darned slow, and December will no doubt be the same, the year overall has held up about as good as anyone could hope. There are few cities in the U.S. who would not trade their economic numbers and real estate market for ours here in Austin.

Finally, let's look at the November breakdown by price rance for a better understanding of which homes are selling and which are over-supplied.

What does this tell us? It tells us the the seller or buyer of a home priced under $200K is living in a completely different real estate market than the buyer or seller of a home priced above $300K. In the "below $150K" range, homes are selling in less than 60 days and we have less than a 6 month supply, even using the dismal Nov sales volume as the denominator instead of the average of the past 12 months (the other way to do it).

In a balanced market (neither buyer or seller have the economic advantage), 6 month's inventory is considered the balance point, and home will sell in about 60-90 days, on average. Of the 914 homes that sold in Austin in November, 56% were sold for less than $200K, and a massive 80% of all homes sold in November in Austin were priced below $300K. Homes priced above $300K simply have an insufficient number of buyers to absorb the current inventory.

The "Month's Supply" column shows the relationship between the number of active listings and the current volume of sales activity in that range. Moving down the price ranges we see the sobering reality that sellers in the higher ranges face. For example, we have a listing priced at $569K. There is a 14 month supply in that price range, with 213 other homes priced between $550K and $600K, and only 15 in that range sold last month. We'll be riding this one out into the Spring with the seller as the showings have essentially grinded to a halt since October. In this case, dropping the price to the lower $500Ks won't even create much of a change in foor traffic, because there simply are not enough buyers out looking for homes over $500K, so patience is the only viable option.

Likewise, a buyer qualified for up to $600K has a lot to choose from and if that buyer is flexible in their requirements, can submit agressive offers on many different homes until they find the most motivated seller. Bargain hunters looking below $250K have experienced more frustration, as it's simply not a buyer's market in that range.

As usual, questions and/or comments are welcome.

Today is the deadline for Austin Realtors to pay annual board dues. It cost $347 to remain in business as an Austin Realtor for 2009. That may not sound like much, but many agents don't have the money, and they don't have any listings or active buyers. For some, it's a very depressing decision to make - stick with it or give up. Many of course do give up, which is probably the best decision.

Looking at the dues I've paid into the Austin Board of Realtor and the MLS for 2008, the total is $1,133.50 in ongoing dues and fees. So agents who do pay the $347 due today, will have to cough up another $393.25 in Feb, and that amount again 6 months later.

The thinning out of agents is healthy for our industry. Those who monkey around doing a deal or two a year part time really shouldn't be practicing real estate, in my opinion. I don't see how anyone can maintain an appropriate level of expertise and knowledge if they are not in the mix day in and day out, closing sales, dealing with problems, helping people and learning. And that means that the people they do help are not receiving a level of perspective and knowledge that busy, experienced agents can provide.

So, while I don't wish ill will for anyone, a lot of Austin Realtors won't pay their dues today, and good riddance to them. They need to go find something they can approach with more passion and success. This business isn't for everyone. In fact, given the failure rate of Realtors nationwide, year after year, good markets and bad, it's a business for very few.

Why do so many fail?

For the same reason so many people can't lose weight. There is NO SECRET to succeeding in real estate. The recipe is simple and easy to follow, just like losing weight. But for reasons I can't explain, very few actually do what is required. Instead, they try something different, or focus on inconsequential ancillary issues, such as how their business card should look, or what contact management software to use. Meanwhile, they are doing NOTHING to generate leads. This is an amazing thing to witness, but I see it over and over again.

Then, when failure becomes apparent, the blame game starts. "This market is just too tough right now". Or, "what's wrong with these buyers? They can't make a decision". Or, "I can't get my sellers to price the home reasonably". And on and on.

Sylvia and I feel blessed and lucky, but we work really, really hard. And a lot of the hard work is pure grunt work, making phone calls, staying on top of things, talking to past clients, calling FSBOs and Expired listings, previewing homes, attending training and economic functions, networking, prospecting and planning. None of it is easy, but it's not complicated.

Fairwell fellow agents. Good luck in whatever you do next.