Viable Investment Opportunities Return to Phoenix Real Estate Market

The Phoenix real estate market has finally softened sufficiently that we're starting to see investors flow back in. I receive emails and calls daily from different types of investors, most of whom are far more sophisticated than the 'day-traders' who are partially responsible for the super-heated run of 2004-2005.

A few interesting dynamics to note:

-As lenders take back more and more properties that fail to sell at auction, some large investor groups have amassed huge funds (up to $100M) to acquire 'bundled portfolios' of properties at pennies on the dollar. Indeed, some believe that 'the small guy' will be crowded out of the foreclosure market as banks continue to bundle and sell off their REO portfolios.

-One Business Week report estimated that more than 50% of all mortgages taken out in Maricopa County in 2004 and 2005 were interest-only, which has very interesting implications on our housing market in the near-term.

-Tightening lending standards were the X-Factor that most didn't think would happen as quickly as they did. A few weeks ago, lenders called agents in my office and encouraged them to get their buyer-clients re-qualified and to obtain backup approvals for those under contract. A buyer who qualified for a program days earlier could suddenly find they no longer qualified for that program, or that the program went away altogether.

-None of the last several properties that my team has sold hit appraisal. Falling prices have trickled through the system so that the historical comps that appraisers utilize don't support today's sale prices. Expect this to become a more significant issue as more and more short sales occur.

-We're starting to see properties come up for sale that could be cash-flow positive rentals, which has not been possible in Phoenix for years, and is quite exciting to those investors who are bullish on Phoenix in the long-term. Indeed, Phoenix real estate is ON SALE!

It's worth pointing out that this is a great market for anyone who's looking to 'move up' (that is, sell a home and purchase a higher-priced home) or simply to purchase. The ones who are the most adversely affected are those who purchased since 2005 and, for whatever reason, *need* to sell today. Fortunately, that's a small percentage of homeowners.

The fact is, homes ARE selling...they just need to be staged better and priced lower than other homes in the community.

Phoenix Real Estate Update - September 2007

As we approach the end of September, let's take a look at how the Phoenix Real Estate Market stands. All statistics are courtesy of the Arizona Regional Multiple Listing Service (ARMLS).

Active Residential Single Family Inventory: 57,785
Pending Inventory: 4,327
Sold (9/1/07 thru 9/23/07): 2,117

Inventory continues to grow and turnover remains historically low. The silver lining is that the downward pressure on prices has already begun to attract savvy investors, eager to capitalize on the 'poor timing' of the amateur investors of recent years. I expect the market to continue to become more and more attractive to prospective home buyers who otherwise couldn't afford to purchase here. And that's a good thing!

Design Trends: The House of 2015

The National Association of Home Builders recently conducted a survey of more than 300 architects, designers, builders, and other industry experts to see how the home of 2015 will differ from today's average home.

Results reveal that the interior design and floor plan of the home of the future is going to change to reflect social and behavioral changes. For example, the family room is predicted to grow at the expense of the formal living room, reflecting the trend towards casual entertaining.

The average size is forecast to be in the 2,300-2,500 sq ft range, comparable to today's average. The strongest trend will be towards luxury. Extra bathrooms, state-of-the-art lighting and plumbing fixtures, and, I suppose, home automation systems.

Other predictions for the average home:

• 9-10 ft ceilings
• 2.5-3.5 bathrooms
• Larger kitchens with islands
• Fewer walls seperating their family rooms and dining rooms
• Recessed lighting
• Larger garages

More luxurious outdoor spaces are expected, too, with the proliferation of full back yard kitchens. Eco-friendly 'green' construction is also expected to play an increasingly pervasive role in home building and design, such as efficient water conservation devices and energy-efficient appliances.

I believe we'll see more integration of technology and design to suit the modern lifestyle. For example, climate control, lighting, and audio/video control systems that are centralized and adaptive to the homeowner's lifestyle and preferences. We'll see built-in refrigerators that track expiration dates and quantities and automatically update your shopping list accordingly. And out-dated materials, such as vinyl laminate countertops, will all but disappear as man-made or engineered materials (such as Silestone countertops) become more affordable.

Phoenix Real Estate Myth-Understanding 4: "I don't need a Realtor to represent me on a new home purchase because the builder's agent will."

Truth:

The Builder's Sales Agent represents the Builder ONLY!


There's a sign posted on the front door of every model home sales office in the State of Arizona that states something to this effect:

"If you are represented by a Realtor®, they must accompany you during your first visit to this community."

Home builders factor a Realtor's® commission into the cost structure of every home they build, but they would much rather retain that margin than pay it out for your representation. Therefore, they take the stance that, if your Realtor® is not with you during your first visit to the community, the Builder's advertising must be the reason you found the community, and will thus serve as the procuring cause (see "Myth-Understanding 1") if you decide to purchase there. The Builder will not pay your agent.

Furthermore, if you do move forward with your purchase, with or without independent representation, the Builder will make you sign a disclosure form whereby you acknowledge that the Builder's agents and staff represent the Builder and the Builder only, not you. They may make you feel like you're long-time best friends, but in the end, the Builder's employees are obligated to do whatever they can within the confines of the law and company policy to enhance the Builder's bottom line. Shouldn't you have someone looking out for you?

Implications for the Buyers of Phoenix Arizona Real Estate

Whether you’re considering a new home, Phoenix condo, or a resale home, having an experienced Realtor on your side can:

-Help you negotiate more effectively with the Builder.

In today's market, a good Realtor® can often save their clients several thousand dollars above and beyond than the Builder's advertised incentives. At worst, having a Realtor on your side won't cost you a dime!

-Review contracts, addenda, disclosures, governing documents, and Public Reports for red flags.

In contrast to a residential resale transaction, a new home transaction is governed by documents that are created and drafted by the Builder. They are not the same Arizona Association of Realtors® forms that guide the majority of transactions. An experienced Realtor® will have seen enough Builders' contracts that he or she may be able to spot 'holes' or potential adverse implications before they arise, saving you time, money, and aggravation.

-Broaden your Horizons.

A busy Buyer's Agent may know of a new home community that even the best targeted search methods overlook. As an expert on today's market, he or she may introduce you to a community that is perfect for you that you would have otherwise never found.

Phoenix Real Estate Myth-Understanding 3: "I don't need to talk to a mortgage lender or Realtor until I'm ready to buy."

Truth:

In fact, there are a few very compelling reasons to communicate with a Realtor® and a lender as soon as you think a home purchase may be in your future.

Your first call (or email) should be to your Realtor®. A good Realtor® will set you up to succeed with your search and subsequent purchase by providing:

-An Initial Consultation: Your Realtor® will schedule an initial consultation to help you build a detailed search strategy that is consistent with your real estate goals and your lifestyle. This meeting will give you a chance to assess whether or not this is the right professional for the job. During this appointment, you should receive a concise overview of market conditions, an introduction to the Realtor's® team and office environment, some background information about the agent, and he or she should conduct a detailed needs analysis that will be used to structure your search.

-Technology Tools: Your Realtor® can set you up for custom property searches so that you receive notifications anytime properties matching your criteria hit the market. During the early stages of your search, these emails will help you refine your search parameters and zero-in on the right neighborhood. Later in your search, these notifications will serve as your "heads-up" that your next home may now be available and waiting for you!

-Personal Knowledge: The 'Right' Realtor® for you is the one who you can call anytime and with any question and know that you will receive sound advice without sales pressure. A thriving realty group can be a fantastic resource for you --- helping you keep your finger on the pulse of real estate activity in your area. Also, some Realtors® are aware of 'pocket communities' that fall under radar of most homebuyers, but that perfectly match your search criteria.

-Valuable Partnerships: An experienced Realtor® will maintain a 'secret list' of top-tier contractors and service providers that may be needed before, during, and after the transaction. I'm talking about that "A-List" of professionals that you can turn to for the best work at the best prices. The list may include landscapers, electricians, plumbers, roofers, home inspectors, home warranty providers, and, of course, lenders.

Why should you contact a mortgage consultant as soon as you think a move may be in your future?

I'll give you three very good reasons:

1) A lender will tell you how much home you can afford in keeping with your budget so you can target your search appropriately,

2) A lender can keep you apprised of interest rate changes and offer you the ability to ‘lock in’ a rate once you’re ready to make a purchase, and

3) You will need to submit a Loan Status Report (LSR) or Prequalification Letter with any resale home purchase offer. The LSR serves as the Seller's assurance that you are qualified to complete the proposed purchase.

Implications For Someone Interested in Buying Phoenix New Homes:

If you wait to talk to a Realtor® and a lender until you’re ready to make a purchase, you’ll miss out on many of the tools and the knowledge that these professionals can bring to the real estate purchase process. In most cases, it’s a good idea to consult a Realtor® at least 90 days prior to your anticipated move date, and at least 120 days if you have a home to sell before you can move into a new home.

Phoenix Real Estate Myth-Understanding 2: "I can save money by negotiating directly with the Listing Agent."

Truth:

As long as the property is offered in the Multiple Listing Service (MLS), this is almost always FALSE.

By the time a property is listed in the MLS, the Seller and the Listing Agent have already executed a Listing Agreement that details the commission to be paid upon sale of the home. The Listing Agreement is a contract between the Seller and the Broker. It dictates the total compensation due to the Broker when the house sells, regardless of whether or not another Broker is involved in the transaction.

Once the Broker has an executed Listing Agreement, the Listing Sheet that's advertised in the MLS creates the contract that dictates the commission (reward) that the Listing Agent will pay to the Buyer's Broker for bringing a ready, willing, and able Buyer.

So unless special provisions have been created and/or you happen to find a Listing Agent who's willing to cut their own commission, you will not be able to negotiate a lower price than if you had a Buyer's Agent negotiating on your behalf. The Buyer's Agent's commission has already been factored into the sales equation.

A small number of agents draft special provisions in their Listing Agreements that reduce their commission if they find the Buyer, but such arrangements are very unusual today.

Besides contractual factors, there are several other reasons to leverage the skills of a professional Buyer Specialist:

-Market Knowledge: A busy Buyer's Agent will preview several hundred properties per year, so they will have an intimate knowledge of property values in various communities and will be fully 'in-tune' with current real estate market conditions, giving them a natural advantage over any non-Realtor® who doesn’t have the time to closely track real estate market conditions.

-Access to Specialized Information: Realtors® invest in technology tools that allow them to 'dig deeper' into the details of any given property or community. When properly analyzed, this information can be used to put together a very compelling story to support your offer price.

-Specialized Training: Many full-time Realtors® attend negotiation workshops and seminars and have refined their skills on the job. The best of them engage in on-going training so they're prepared to secure for you the best possible terms.

-Knowledge of Contracts and some Real Estate Law: There are many terms of the Purchase Contract and Addenda that can be negotiated. Some are financial and some logistical. An experienced, full-time Buyer's Agent knows what these items are and how to 'weigh them' and where to 'push and pull' to get a favorable offer accepted. Furthermore, a good Buyer's Specialist will have enough experience to spot potential pitfalls or deviations from the norm before they have a chance to adversely affect the transaction.

Real Estate in Phoenix Gives Rise To The Following Implications:

Obviously, you don’t need to work with a Realtor® to purchase a property. It’s something you CAN legally do on your own. However, there are very few instances where self-representation will benefit you more than hiring an experienced professional to advocate your interests. An experienced Buyer’s Agent will not cost you a dime, but will offer you an arsenal of tools to position you for success from start to finish.

The Perfect Real Estate Professional?

I have been thinking about my "Why people hate real estate agents" posting and would like to ask anyone who might be reading this a simple question:

What could a Realtor do to contribute maximum value to the real estate purchase and sales process, from your perspective?

Phoenix Real Estate "Myth"-Understanding 1: "It's OK to visit an Open House without my Realtor present."

After working with hundreds of homebuyers, I've come to recognize that there are several common misconceptions that are widely held to be true by experienced homebuyers and first-timers alike. I refer to them as "Myth-Understandings" and I've seen many prospective buyers harm their own cause as a result of their misled belief in them.

Keep in mind that real estate laws very from state to state. If you have any questions about how this topic applies outside the State of Arizona, consult a local attorney in the state in which you plan to do business.

MYTH #1: "It's OK to visit an Open House without my Realtor® present."

TRUTH: Only if you don’t care to work with your Realtor® anymore! If you visit an open house, whether you’re represented by a Realtor® or not, the Realtor® hosting the open house becomes your only legally-recognized agent for that specific property and the only agent entitled to compensation by the Seller.

The legal notion of procuring cause states that the broker who engages in an effort which brings about the sale is the one entitled to the commission. (The Language of Real Estate, John Reilly, Fifth Edition) In this case, the "Open House" signs that guided you to that property would constitute the procuring cause, if you eventually decided to purchase the home. The Realtor® who hosted the open house would be entitled to the full commission, effectively cutting your Realtor® out of the equation. You’d be stuck working with the Realtor® representing the seller, regardless of how professionally and fairly you believe they’ll represent you.

Even worse, if you had signed a Buyer Broker Agreement with your Realtor®, which has no effect on procuring cause, you could be compelled to pay your Realtor’s® full commission yourself!

Here are a few other situations that fall under the procuring cause umbrella, where you could lose the ability to work with anyone other than the Listing Agent:

-You drive by a house for the first time and see a "For Sale" sign in the yard. Not wanting to bother your Realtor®, but motivated to see the property, you call the Listing Agent and arrange for them to meet you for a private showing without your Realtor® present. The Listing Agent's "For Sale" sign is the procuring cause.

-You see a gorgeous property advertised in the newspaper, so you call the Listing Agent and meet him at the home for a private showing without your Realtor® present. The Listing Agent's advertisement is the procuring cause.

-Your Realtor® is out of town for a week when, while searching on the Internet, you see that the 'perfect' property has just hit the market. You call the Listing Agent and notify her that you are already "working" with a Realtor®, but that you'd like to meet at the property for a showing so you can tell your Realtor® about it when he gets back in town. Since the other agent showed you the property, they would be the procuring cause.

-You visit the Sales Office at a new home subdivision that you've never visited before, just to take a look at the models for decorating ideas. While you are there, you fall in love with one of the homes. The next day you meet your Realtor® at the community to put an offer in on the home. Because you visited the community for the first time without your Realtor® present, the builder's advertising is the procuring cause and the builder would not compensate your Realtor®.

Implications When Looking For Phoenix Homes For Sale

In a non-dual agent role, your Realtor® is your agent, your trusted advocate whose sole function is to help you find and acquire the perfect property for your needs at the most favorable terms and conditions to you. The safest thing to do is to notify your Realtor® of ANY properties that you would like to see, including "For Sale By Owner" homes, new construction, and traditional resale properties. Your agent can gather the facts for you and make arrangements for you to visit these homes, when applicable. Furthermore, an experienced agent will begin positioning you for the potential upcoming negotiations with the other Realtor® from the very first communication.

Why do people hate real estate agents?

A few years back I heard about a public opinion poll that had rated real estate agents only one spot ahead of used car salesmen in trustworthiness and likeability. At first I wanted to deny the results. "Show me proof of this poll!" I very quickly realized, however, that the existence of this poll was irrelevant. If such an idea could remain alive and circulate freely through the general public without being quashed, it's clearly not so far-fetched.

I vowed to do whatever I could to separate myself from "them." I created a slogan that let people know they could trust me to serve them. And I created a mission statement that captured the essence of my business philosophy:

"Re-defining the residential real estate experience through integrity, market knowledge, and professionalism."

Most importantly, I sought to understand precisely which behaviors led to the public's perception of my chosen path. In any service industry, the best way to learn how to improve one's performance and one's image is by understanding where we fall short. I use the term "we" to include all professionals working in a given field, because customers tend to lump various types of professionals together in terms of their characteristics (think "postal employee"), without regard for the natural tendancies that differ from person to person.

Very early on in the relationship I like to have a discussion with my clients about what sorts of experiences they've had with Realtors in the past, if any. Have you worked with a Realtor before? To buy or sell? Tell me about your agent. Were you pleased you used them? Why aren't you using them for this purchase/sale?

I've interviewed hundreds of people on this topic and few common complaints surface again and again.

Home buyers most often report that their agent "didn't listen" to them with regard to property characteristics. "We told him we wanted a house with a large kitchen, but he kept showing us houses with small, galley-style kitchens!" Or "We said our home MUST be in a certain community, but he continued to send us property listings for homes in other areas! He didn't listen to us!" Many of these buyers ended up ditching their agents to take their searches into their own hands.

Hands-down, the most common complaint among home sellers is, "My agent took my listing and I never heard from her again, except to suggest price reductions! I have no idea what she was doing to sell my house!"

Both buyers and sellers commonly report that their agent didn't negotiate as strongly as they thought they should have, or that a 'mistake' in the contract paperwork caused a negative financial impact (e.g. "He didn't tell us that our flat-panel big screen TV was considered a fixture and had to convey with the house!").

Unfortunately, the sales cycle is an emotionally-charged time for all parties, so any problem, either real or perceived, is magnified. Realtors are paid handsomely for their expertise and nobody likes to feel like they've overpaid and been underserved.

As for my team, we listen to and learn from our clients in order to continually improve the value of the services that we bring to the table. Whether we're working with a seller of a $150,000 Phoenix condo or representing a Paradise Valley estate seller, our service standards do not vary. Our clients put their trust in us to represent them as effectively as we can regardless of the price point of the transaction and that's exactly what we deliver.

Back to my original question, why do people hate real estate agents? I believe it boils down to a few key reasons, all centered around consistency and quality:

• Low barriers to entry and perception of 'easy money' have flooded the market with agents, resulting in erratic service at best;
• There are no standardized systems for running a real estate business - agents are independent contractors who are responsible for developing their own business and service models. This results in inconsistent (often incompetent!) service because it's beyond their expertise to build them;
• There are no systematic mechanisms in place to regulate real estate agent performance - we're free to practice at any level of competence as long as we retain our licenses, which involves 48 hours of continuing education training every 4 years and not running afoul of the law. Only public complaints filed with the Department of Real Estate or legal troubles seperate the professionals from the rest. Otherwise, we all look the same.

The good news is that high quality real estate professionals will thrive in all market conditions, while those who aren't, won't. Every decade or so the housing market will 'correct' and the least capable agents will be forced from the business, leaving it a better place, at least temporarily.

The Valley's 10 Hottest Intersections

On 9/1 The Arizona Republic reported the Valley's 10 Hottest Intersections in terms of development, growth and appreciation, as voted on by members of the Urban Land Institute.

Interestingly, only the top 3 intersections were 'ranked,' probably due to a lack of consensus on the others, so #'s 4-10 are only given honorable mention. Here are the results:

1. 24th St & Camelback Rd
2. Scottsdale Rd & Camelback Rd
3. Mill Ave & Rio Salado Pkwy
4. Scottsdale Rd & Mayo Blvd
5. Central Ave & Washington St
6. Priest Dr & Warner Rd
7. Val Vista Dr & Pecos Rd
8. Price Rd & Willis Rd
9. 95th Ave & Glendale Ave
10. 99th Ave & McDowell Rd

I concur with the first 2, though I believe that the development plans that are in store for Scottsdale and Mayo, when coupled with nearby Desert Ridge, should put this intersection ahead of Mill Ave and Rio Salado Pkwy.

One thing that struck me about this 'article' was the extraordinary lack of added detail. Quite a bit of 'hard data' (e.g. traffic counts, median incomes, zoning, and land use) was factored into the analysis, but none of that data was discussed. From my perspective, that doesn't do much to substantiate the findings.

What's going on with the Phoenix housing market?

In July I was asked to write an article on the state of the Valley's housing market for the North Valley Magazine. I decided to take a look at historical sales activity from 2002 (before the 'boom') to the present.

Using data from the Arizona Regional Multiple Listing Service, I showed that our market is more out of balance than many would believe. Inventory levels in 2002 ran around 25,000 homes in the MLS, which does not include new construction or For Sale by Owners. In 2007, we're over 56,000. Furthermore, between May 2005 and May 2006 inventory rose from 9,451 homes to 51,013! Days on market has risen steadily from around 65 in a normal market to around 90 in May. Today that number is over 96, so we still have not bottomed out yet.

Normal sales levels are around 6,300, but in July 2007 only around 5,300 homes sold. Consistent with the law of supply and demand, the increased supply and decreased demand has resulted in a healthy drop in the average sales price.

Not all is negative, however, as a few historical trends should continue to bolster our market. While no one knows for certain what the future has in store for Arizona, more than 5 decades of consistent growth and economic prosperity point to a bright future. Data from the US Census Bureau, the Bureau of Labor Statistics, and the Bureau of Economic Analysis show that Arizona has been among the top states in the nation for more than 5 decades in key indicators - population, employment, and personal income growth. Furthermore, Ariozona has been growing by more than 100,000 new residents per year.

By 2030, Arizona's population is expected to swell from 2000's level of about 5.1 million residents to over 11 million, bumping Arizona from the 20th to the 10th most populous state. These statistics support a health housing market in the long term.

I ended the article by proposing what I call the "5 Building Blocks to a Successful Sale in Any Market."

While most industry experts agree that the long term outlook for the Greater Phoenix real estate market is favorable and balanced, what about today’s home seller? What can she do to cope with the challenges of our market?

I’ve put together a list of five qualities, or building blocks, that any home seller can follow to consistently yield above-average sales results regardless of market conditions. They’re equally-important and just as relevant in a seller’s market as they are a buyer’s market. They are:

Right on pricing: The most accurate way to develop a pricing strategy is to put yourself “in the shoes” of a prospective buyer and visit several homes for sale in your community that are similar to yours. Only after you know how your home stacks up against the competition in terms of features, upgrades, and condition can you price it appropriately. Buyers today visit many homes and can very quickly identify when a home is not priced consistently with other similar homes.

Stand-out staging: You should never open your home up to a prospective buyer until it’s ready to show! Buyers in today’s market are rare and valuable commodities and you will only get one chance to impress them. Whether you lean on the experience of your REALTOR®, hire a professional home stager, or do it yourself, make sure you’ve tidied up, de-cluttered, and made necessary repairs or alterations to prepare your home for sale before you put the sign in the yard.

Aggressive marketing: The goal of any home seller should be massive exposure of their home to as large a pool of prospective buyers as possible. Your marketing plan should include a print component to attract local home buyers, as well as an extensive Internet strategy to attract global buyers. The fewer buyers there are in the market, the more important it is to extend the breadth and depth of your reach.

Diligent follow-up: Every single buyer who visits your home should receive a follow up phone call for feedback the day after the showing. Over time, you may receive consistent criticisms that give you the opportunity to adjust ‘on the fly’ and position yourself more favorably for the next visitor.

Smart negotiating: Many buyers and sellers focus so intently on “getting their price” that they overlook other factors that could mean the difference between a successful deal and a parting of ways. Before you rush to the negotiating table and risk losing a valuable buyer or the house of your dreams, take time to learn what’s important to the other party and compare them to your goals. Once you understand how your interests align, you’ll be in a better position to put together a win-win deal.