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What’s next for real estate?

For most people, real estate remains a critical part of personal net worth. Despite the stock market’s recovery, the average net worth of an American family is down about 25% because of tumbles in real estate values and investment assets.

Overview of Market Trends – Focus on Boston

While still suffering because of continued turmoil in the anchor employment areas of Financial Services, Insurance, Real Estate (FIRE), there have been signs of stability in and near major metropolitan areas like Boston. Although the employment picture remains bleak, the Boston metropolitan statistical area (MSA) showed the strongest gains in property values during 2009 according to a recently released report by Zillow Real Estate Market Reports.

Even with the strong gains helped along by the federal government’s first time home buyer credit and continued low mortgage interest rates, there remain nearly 25% of homes that are “upside down” on their outstanding mortgages.

High unemployment persists as companies continue to announce layoffs or delay hiring. And given the expected wave of creative mortgage products like Alt-A loans, interest-only loans and “pick-a-payment” adjustable rate mortgages resetting to higher rates putting pressure on homeowners who are unable to refinance because of lack of jobs or lack of value, there will likely be an increase in the number of foreclosures.

According to research reported by HousingPredictor.com, the major metropolitan areas in the US will likely not see a boom in real estate until after 2020. With more than 7 million people unemployed and another 20 million listed as underemployed, it may be 2017 or 2020 when these workers are absorbed. And real estate sales depend on those who have jobs.

Real estate booms have typically run in seven to 10 year cycles with some outside trigger precipitating a crisis that popped the bubble. The current situation is unlikely to be different.

Implications for Investors

Apartment vacancy rates are expected to rise through 2010 to about 7% to 10%. The continued collapse in confidence about jobs hampers household formation as individuals may delay marriage or move back in with parents or relatives or double up with friends.

As foreclosures rise, there will likely be greater demand for replacement housing so vacancy rates may fall. And as workers try to keep their options open to accommodate moving for job opportunities, demand for rentals will likely increase as well. The caveat is that there will also likely be a range of supply options that will put pressure on rents. And as a result of continued poor economic conditions, landlords can expect that credit quality of tenants will erode.

Apartments will have to compete with an increasing supply of single-family homes. Currently, the single-family homes available for rent has ballooned to nearly 10% compared to the long-term average of 4.5%. And a change of policy by mortgage servicer Fannie Mae will allow renters living in homes or apartments where the landlords have been foreclosed on to no longer be evicted. This will likely mean that largest landlord of single-family rentals in the US will be a quasi-governmental entity.

The volume of sales in the multi-family market is way off and likely to continue. Potential buyers continue to wait for prices to stabilize. There will continue to be an upward shift in cap rates by 1% to 2% approaching the cap rates of 2002 (8.2%) which will directly contribute to downward pressure on prices in the range of another 10% to 20%.

And given the more stringent underwriting criteria like higher down payment requirements, the number of investors capable of acquiring a property will likely be limited. But there will be opportunities for those investors with the capital and credit to buy when prices stabilize.

Residential property management in West Chester, PA involves serving two different rental communities.

The first community includes students who attend West Chester University. As certain geographic areas of West Chester do not allow student rentals, it is very important that you make sure what part of town your investment property is located. Student housing is very time consuming for property managers and requires extra man hours to serve their needs. For example, with student housing we get calls to change light bulbs, remove snow or ice, clean rooms and many other requests that we typically do not get from non-student tenants. As an investor you want to make sure that you have a property management company in West Chester, PA lined up to handle these issues or be prepared to handle them yourself.

Also, with student housing you will get a lot of turnover and most students stay one year and move out. So be sure to plan high tenant turnover when considering investing here.

The second community in West Chester, PA is non-students. This may include individuals that live in this very popular community or in some cases people that work at West Chester University. These types of tenants tend to be more mature and easier to manage the properties in which they reside. Additionally, they tend to pay rent on time and do not need nearly as mush maintenance or attention. As an investor this may be the better option, but these types of investment properties tend to cost more per unit.

The good news is non-students may live in your investment property for many years and reduce your vacant time.

West Chester, PA is a very popular community with lots of shops and restaurants in the downtown section. West Chester, PA is also the home of QVC, one of the largest employers in the area.

This town continues to be a very hot market for both sales and rentals. The average sales price for home as of November 2018 is $414,100. The average sales price is up 3.4% over the last year. The rental market is also seeing nice price appreciation. The average rental is $2,242 per month and is up 1.5% over the last month. This compares to the average rental in Philadelphia of $1,581 and nationally of $1,449. Given the strong popularity and strong employment in the area I would suggest this a great place for real estate investors to look for investment properties and above average returns.

The majority of those who successfully sell their own property are the property owners who live in highly populated metropolitan market areas where property sales are more common. In a buyer’s market or in rural areas it is much harder for properties that are for sale by owner (FSBO) to successfully sell.

A buyer’s market is when there are more home sellers than there are people to buy homes. This creates a situation where the home buyers are exposed to a large range of property to choose from making it a more competitive market for the sellers. Homeowner’s should opt for the FSBO option only where the local economy is doing well and it is a seller’s market.

To be considered a seller’s market there needs to be more buyers then properties for sale. In a seller’s market the buyers are left with fewer properties available to them. This often creates a situation where the sellers are much more selective on the buyer and also get a higher selling price for their property.

There are other economic issues that play a role in the real estate such as home mortgage interest rates, local employment, and consumer confidence. Unfortunately we can’t control the economy and some are forced to sell their homes or buy homes in times that are unfavorable financially to them.

There are a few things people who succeed at selling their homes do to increase their odd of winning at FSBO. They need to be able to have the financial support that it takes to keep their property exposed to those who are purchasing homes for the entire period it takes to sale a home. This advertising period is at least 90 days and includes personal signage, advertising, repair costs of the home, and professional legal advice. You also should have a little bit of spare money to back you up financially if there are any marketing mistakes.

You should also have basic business knowledge about important marketing, personal selling, as well as enough technical information on real estate principals and practices. This will prevent you from making informed decisions that can cost you a lot of money and stress.

Anyone who wants to list the property FSBO must be disciplined with marketing goals and objectives with set time frames for the process and finalization of those goals and objections. You need to be able to be very organized and able to pay close attention to details.

There are a lot of stressful moments when selling something as expensive as your own home so you need to be able to keep a business perspective on all decisions. When selling you own home always avoid guesswork and replace it with concrete analysis. Making informed decisions is much less stressful then guessing.

If you want to sale you own home successfully you need to be a wise negotiator and be able to effectively deal with the different personalities in your potential home buyers. Be ready to and well equipped to sell your home and plan to use a lot of time devoted to selling your home.

You may wish to contact Joe and Colleen Lane, Realtors® for more info on real estate, especially in the areas of Pasco Wa Real Estate, Richland Wa Real Estate, and surrounding Southeastern Washington Communities.

FSBO sellers will reject you. Remember, they would prefer not to use your services. But if you maintain a steady, professional relationship, offering help and staying in contact for four to five weeks, you will usually be able to win an interview. From there, a listing follows.

Increase your odds of success by taking these two precautions:

1. Limit the number of FSBOs you cultivate. Focus only on the best clients.

2. Avoid prospects with low motivation or unrealistically high price expectations. These sellers are usually the most toxic, and too often, they will try to take their frustrations out on you.

FSBOs fundamentally turn into a game of lead follow-up. You need to personally and regularly contact your FSBO leads to discover their motivation and qualifications, book a face-to-face meeting, disqualify prospects as necessary, provide regular service and communication, and schedule a presentation appointment. Then you need to repeat the service and communication steps several times weekly until the listing is in hand.

To make personal contact, begin by asking the FSBO seller if you can come by and see the home. You can ask them in a few different ways. You can explain that you want to keep abreast of the regional housing inventory; you can say that you are working with buyers who may be interested; you can present yourself as a potential investor; when you can, you can use the “reverse-no” technique. Following are sample scripts for each approach.

Script for keeping up with the inventory:

“Mr. Seller, your home is located in my core area of sales. Because it is, I would like to come by and preview your home. Would there be a time on __________ or __________ to do that this week?”

Script for working with the prospective buyer:

“Ms. Seller, I understand you are selling your home on your own. Let me ask you this: are you cooperating with real estate agents? What I mean is, if a real estate agent brought you a qualified buyer at an agreeable price to you, would you be willing to pay a partial commission?

We are working with a few buyers for your area that we have not been able to place yet. May I come by on __________ or __________ later this week to see your home?”

When you use the above approach, understand that you are not interested in reducing your commission. What you’re really trying to do is achieve a face-to-face appointment to collect more information on their sellers’ motivation in order to determine the probability of securing a listing in the future.

Script for a potential investor:

“Mr. Seller, your home is located in a solid area for real estate investment. I was wondering if I could come by to see your home as a principle for possible purchase and to see if it is a property that would meet my investment needs. Would __________ or __________ be better for you?”

In using the above approach, realize that the key phrase is investment needs. You will rarely find a FSBO that will meet your investment needs. My personal investment need is a home that can be acquired at a 70% discount below fair market value. Most FSBOs are trying to sell their home at 110% of fair market value. This technique does get you in the door to see the home and talk with them.

Script for a reverse-no:

“Ms. Seller, would you be offended if I came by to take a quick look at your home?”

The reverse-no technique can be used with any script. It capitalizes on the normal reflexive human reaction of “no” in order to achieve a positive response. It opens the door to you to then set an appointment.

FSBO Survey Script

Hi, this is __________ from __________. I am looking for the owner of the home for sale.

Your home is in my core area. I am doing a quick survey of the FSBOs in this area. May I take a few minutes to ask you some questions?

The ad in the paper said that you had _____ bedrooms and _____ bathrooms.

1. Do you have a two level or one level home?
2. Are all the bedrooms on the same floor?
3. Are they good sized rooms?
4. How is the condition of the kitchen?
5. Are the bathrooms in good condition?
6. Can you describe your yard for me?
7. Is there anything else you feel I should know?
8. It sounds like you have a great home; how long have you lived there?
9. Why are you selling at this time?
10. Where are you hoping to move to now?
11. What is your time frame to get there?
12. How did you happen to select that area to move to?
13. How did you determine your initial asking price for the home?
14. What techniques are you using for exposure and marketing of your home?
15. Are you aware that over 86% of the buyers for properties begin on the internet now?
16. If there was a clear advantage for you in using me to market and expose your home, and it cost you very little, would you consider it?
17. Let’s simplify. Set a time to get together for fifteen to twenty minutes, so I can see your home and understand your objectives. I have time available __________, or would __________ be better for you?

Building relationships

FSBO relationships are built over time. By introducing yourself to the owners the first weekend their FSBO is announced, before the masses start calling on Monday, you create a good connection. By sending them tools, educational materials, free reports, and forms, you become an ally. By taking a personal interest in them and their situation, you create a solid connection that, in many cases, pays off when the owners decide to go with an agent they know and trust – preferably you.

Over the course of building a relationship with the owners, you’ll be able to get them to understand that, in every real estate transaction, a commission is paid. In the end, FSBO sellers don’t “save” the commission. Rather, they try to earn the commission by doing an agent’s job. In doing so, they spend their money and time to perform, as best they can, the duties of an agent. Those duties include exposing the home through marketing, presenting the home to buyers, building a sense of buyer urgency in order to prompt an offer, scheduling home inspections, handling qualification checks with the lender, supervising repairs, and facilitating the closing.

Not only is a lot of work involved in earning the real estate commission but FSBO owners unwittingly let buyers basically steal the commission through under-priced offers. The people who shop FSBOs don’t do it for their health. They want to secure a low price and a high initial equity position. In the process, they set out to “earn” the commission, and often do.

By building a relationship over time, you will demonstrate your value to the FSBO seller. Remember at all times, whether you’re working with FSBOS or expireds, your goal is simply to be one of the two, three, or four agents that the owner will interview when the time comes. You just want the opportunity to compete and make your presentation.

The year 2017 was considered as watershed year for real estate industry in India. After the trilogy of Demonetization, GST and RERA, the sector was reeling in despair. However, the indomitable spirit of Indian real estate developers didn’t fade a zilch. They rose to the occasion and started to repackage the product, the price and the promotion of their unsold home inventory. From a sales and marketing stand point, they tried to push the envelope to appease the discerning customer. Some of the initiatives which caught attention were in the form of upselling the product, adding the service element to the product, dove tailing technology with homes, bundle up offers with home finance. The home developers also tried superlative adjectives, spiced things up with bollywood and sports celebrities endorsing various residential projects. Projects got rebranded by international brands and innovative launches were executed in line with global best practices. Many developers even completed micro level infrastructure abutting their projects and took over the government’s role of providing external and internal work. The Government continued to follow a lackadaisical approach to urban planning and infrastructure which hurt the customer sentiment further. Many a times, a home buyer got homes but without a motor able road leading to her home. While all of this was going on, Government also tried to get their act together, albeit, at snail’s pace. The Central Government announced RERA (Real Estate Regulation Act) and the states started its implementation in third quarter of 2017. It pushed developers to fast track completion of projects and a certain deadline date was announced. Many residential projects got completed in this rush of deadline, however the sales velocity didn’t match up the speed of completion of these projects. Eventually, RERA implementation failed miserably in most of the states and could not fulfil its objective to provide transparency to the home buyer. It rather deteriorated home buyer’s confidence and hope in Indian real estate. The home buyer, therefore further delayed decisions to purchase homes and felt comfortable being a “fence sitter”. Due to this conundrum, working capital issues reached to unsustainable level with most of the home developers. Many a times, the monthly sales were still not even matching to meet /clear even the lenders liability. The government came up with certain impetus to announce the affordable housing policy and hoped that this might turn the tables for the customer and for the developers. The intent was to ensure faster delivery at a good price to the customer and in turn achieve good working capital for the developer. Many developers diversified into this space and many new entrants also emerged in this space, including some corporates. However, the product suffered immensely as these new affordable homes were too small and were in far flung areas. Therefore, the affordable home policy could not sustain interest of the buyer, after initial euphoria.
So, after all the hoopla of innovative marketing, government compliances and regulations for last couple of years, the sales further nosedived. The inflation in construction cost created the double whammy for the industry. The construction costs took an upward trajectory, thanks to inflation in cement and steel prices. The regulator also continued with its risk weightage on real estate. Therefore, the financing cost of real estate projects especially in residential side continued to be in the range bound of 15%-24% per annum. With increasing construction costs, depleting sales, increasing lending cost, the home developer was pushed to the limit.
While all this happened, the old age mantra of “reduce prices and sell more” took a rebirth. The residential home prices which were chasing Manhattan prices started their journey back home. The home developers who followed this mantra created huge success, broke record of sales while others continued to sweat. Sales velocity became the buzz word and everything else took a back seat. Some of the home developers started to understand the sales velocity equation in a more pragmatic way. Rather than increasing the pipeline and increase the sales activity, the focus changed to win rate and reduction in sales cycle. Once the focus changed from increasing the sales activity to increasing the win rate, the sales velocity started to increase at good pace. Among the various associations of real estate developers, such sale successes were initially ridiculed as “black swan events” and such developers were termed as “outliers”, in a negative way. There were corridor talks that such developers are killing the industry. The lenders however, welcomed this step and are now gearing up to back up these developers more in such trying times. A sense of appreciation is now being seen among many quarters for these developers and the corridor talk died its natural death. It is expected that many other developers in last quarter of 2018, will follow suit and focus on reducing sales cycle and thereby increasing sales velocity. After all, nothing succeeds like success.
This article is written to appreciate such entrepreneurs in the real estate space who took the call to correct their pricing to achieve higher sales velocity. This article is an attempt to also encourage others to follow suit. Let there be a sustainability in prices for the home buyer. It is an important way to achieve reasonable growth in real estate business in India. Once that’s achieved, the economics will start to favour home developer again and there will be Happier Sundays!

As they say, a fish always rise after striking its head at the bottom of the sea. Its time therefore to rise up and act aptly as per the changing landscape.

Disclaimer: The views presented in the article are personal views of the writer and not of any organisation/company. For any queries/comments/feedback, please write at [email protected]