Broadly speaking, an agent is anyone hired by

a principal (also referred to as a client) to act on her behalf and represent her best interests.  In highly regulated industries like real estate or financial securities, there’s a further distinction made to distinguish between an agent and his assistants.  Within the real estate industry, the agents are called brokers and assistants are called salespersons.

Here’s where the confusion starts.  Over the years, real estate marketing convention has interchangeably called the salesperson a “sales agent” or just “agent”.  Since only the broker is an agent and a salesperson is a sub-agent of the broker, the typical use of the term “agent”, such as on Trulia, is a misleading misnomer.

So far, there’s been little attempt by the real estate industry to self-correct for this confusion.  California’s regulators have made at least some half-hearted efforts to clarify by using the terms broker and salesperson in its literature.  By contrast, the recently chastised finance industry has led with its self-governing body, FINRA, to adhere very strictly to “broker” and “sales representative” as its standard industry terms for an agent and assistant.

(For clarity, I’ll refer to agents as “brokers” and assistants or sub-agents as “salespersons” from here on.)

In both the real estate and finance industries, a broker is one who is licensed to execute transactions while a salesperson is only permitted to assist the broker in bringing together a transaction.  Hence, this leads to the more pragmatic definitions of brokers and salespersons:

Brokers

1. must stand to a high level of industry knowledge and competence as verified by examination,
2. are able to legally open a brokerage,
3. take
   exposed skin care

   on nearly all liability for issues with transactions, and

4. bear additional operating expenses like insurance and legal services.

Salespersons

1. meet minimal standards of industry knowledge by examination,
2. must work for a licensed broker,
3. have fewer responsibilities and accept fewer liabilities, and
4. receive after-expense commission splits from brokers.

A broker can choose to work under another broker’s brokerage and be positioned somewhere between a broker and a salesperson in terms of responsibility.  In that case, the broker would be called a broker-associate and would become the sub-agent of his managing broker.

While both a broker and salesperson are in the business of selling real estate, the relationship between them is akin to that between a doctor and nurse or a lawyer and paralegal.  Just like an experienced nurse may have far more practical knowledge than a fresh doctor, the ultimate responsibility still lies with the doctor and his judgment.  Similarly, a salesperson may believe a transaction has been prepared correctly but her broker may find valid reasons to amend the contract.

Now that these terms are cleared up, what does that mean for a client?

While an experienced salesperson can very capably handle your needs as as client, a broker has more latitude than a salesperson in the range of options available in a tight negotiation and can resolve complicated issues more quickly.  A salesperson may need to verify information or discuss with his broker before providing a response.  For most homebuyers, this difference may not be meaningful.  But for professional investors or experienced homebuyers, brokers are clearly preferred.

At many real estate firms, especially large Internet-based firms, there’s not even a choice to work with a broker.  It’s simply not possible at those firms since the brokers are busy managing their brokerage and reviewing contracts for dozens or hundreds of salespersons.  This is why clients will often get better service at smaller real estate firms like Archers Homes, a broker-only brokerage,
where they can work closely, if not directly, with a broker.

As much as any profession touts its progressive transformation by the transparency of the Internet or the accountability of social media, the hard reality is the people in the profession haven’t changed much.  There will always be those who operate with integrity and professionalism and those who look for shortcuts.  It’s especially true in real estate where the hurdle for entry is relatively low.  Nearly anybody with a basic command of English can get licensed.

But, you can get a good sense of who’s a good agent from the blogs they post around the web and their answers on sites like Trulia or ActiveRain.  Writing a good quality blog takes effort.  It’s well written with useful original content that really contributes to the real estate industry, helping buyers and sellers with one of the biggest decisions in life.  At Archers Homes, that’s a standard we hold ourselves to everyday.  Anything less would be an insult, as there’s truly nothing worst than a waste of people’s time.

Unfortunately, there are many who don’t seem to care about the community and post hundreds of junk blogs.  This is an issue brought up by many others, but it’s a practice that goes on unchecked.  Lazy agents would skate a fine line with the law and repost copyrighted materials or news articles on their blogs.  Often, it’s a basic market statistic lifted from a national data provider with no comments or interpretation.  Others would put their listings on their blogs.  None of these blog posts add to the real estate community.  If anything, they distract from those

who are earnestly trying to help.

While this practice continues, it does make it easy for clients to spot the bad agents.  If those agents are so eager to take shortcuts on blogs that represent who they are, it’s easy to imagine how they would behave with clients.  Maybe they won’t outright do something unethical.  But, when it comes to critical items like getting good market comps to negotiate good prices, reviewing HOA documents, or just plain following up on issues, you really have to wonder if those agents will put in the time for you.

With banks and traditional lenders still reeling from the financial fallout caused by their lax lending standards, the Federal government has stepped in as the backstop lender of choice for buyers with less than the standard 20% downpayment.  Currently, the FHA (Federal Housing Administration) provides insured loans for nearly a fifth of new loans and can still qualify buyers with only 3.5% downpayment at lending standards which are looser than those of conventional lenders.

There is a cost of course.  Even though buyers often see the headline interest rates of FHA insured loans as being the same as conventional loans, FHA insurance adds a premium of 1.1-1.15% to regular monthly mortgage payments.  This is on top of an upfront fee to FHA of 1% of the purchase price.  For those with insufficient downpayments and a desire to buy a house in the middle of a historic housing price correction, FHA insured loans are a relatively cost-effective solution.  For the buyers who can see beyond the current distress, the potential price appreciation going forward should outpace the additional cost of financing.

As a comparison, those buyers can also check out PMI (Private Mortgage Insurance) options for downpayments as low as 5%.  Similar to FHA insurance, PMI adds to financing costs each month.  For those with solid credit score of above 750, the cost of PMI is very comparable to FHA.  The trade-off being that PMI backed loans may have less restrictive terms than FHA, allowing the borrower to refinance to cheaper loans sooner when the necessary cash is available.  So, for those with a bit more cash and good credit, PMI is a

better option.  But for those with lower credit scores of around 650, FHA often ends up being cheaper.

A third option is possible — private lenders.  Traditionally referred to as hard money lenders, these sources of financing have stepped in to fill the financing gaps left by FHA and conventional lenders.  For target properties that don’t meet traditional underwriting standards, private lenders can provide financing of up to 50% of the purchase price.  The interest rates charged can be steep, typically around 10-12%.  This high cost of financing reflects the current high level of demand for private capital.  So, while this option doesn’t appeal to most people, buyers who go this route have often secured properties at significant discounts to the market (15-50% below), justifying the costs.

Finally, there’s a range of other creative financing options, which are available depend on the unique situations of each individual buyer.

If there’s ever a need for peer feedback in the real estate industry, this is about as clear as case for it as any.  These bad listing agents are effectively reducing the amount of available inventory since many buyers just don’t understand why it may take many days just to get a response on whether a property is available.  Frankly, clients don’t have to understand, as it’s our jobs as industry professionals to make things happen for them.  This type of passive withholding of inventory just exacerbates an already lean environment with so few quality properties available.

So sellers should independently verify how good a listing agent is.  Besides checking with the DRE for infractions, check online reviews.  Otherwise, we’ll continue to get a percentage of listings which just sit on the market for endless months until the seller gets tired and pulls off the market, serving nobody any good when inventory for good properties is already so tight.

If you know of a particularly bad listing agent,

please share in a comment below.

First, by trading up, these homeowners are opting to sell their homes at either a small or negligible loss so they can purchase a property in a prestigious neighborhood at a steep discount. These are usually million dollar neighborhoods with a few distressed homes that are being sold for 30-40% discounts, even steeper drops than more modest and affordable neighborhoods. Often, they are able to get such a home for little more than what they paid for their current home. Similarly, townhouse homeowners are able to trade up to single families with a bit of financing lifting and foresight.

While taking a loss is hard for anybody to stomach, I commend these homeowners for using this situation to get into a home that otherwise would have remained out of reach even in times of easy credit. The calculus is cold and brutal. For a loss of around $30-100K, they’re able to save $300-500K on a prime property. This is not for the faint of heart.

Meanwhile, another group of homeowners are trading up by actually going against the prevalent trend and moving out into the exurbs. Out there, they can easily buy a home twice as large for half the price. Plus, many of the homes are nearly brand new, having sat empty since the housing bust. This is possible as the telecommuting culture is pretty mature in the Bay Area and many technical workers don’t ever have to show up at the office, negating the enormous burden of high fuel costs.

Of course, the first strategy is predicated by a belief that home prices in California are not about to revert back to the national median. As for the second, it’s a great way to hedge against further price declines since prices in the exurbs are already at the national median.

Yet, qualified buyers continue to be frustrated with the lack of good properties available.  The current low prices from distressed properties are keeping non-distressed sellers from entering the market.  The few good properties that come up are nearly immediately bid up above asking prices and sold.  But, with few good recent comps available, not many sellers are willing to take that chance.  We anticipate the trend to continue through the end of the year, with an odd-couple of prime and distressed properties dominating the market.

Meanwhile, many first-time buyers find themselves simply locked out of the market by new financing restrictions caused by HOA litigation.  This issue is affecting nearly all the condos and townhouses built during the boom, a huge part of the available inventory.

Today, each deal presents a novel set of struggles and terms.  Yet, despite the challenges, firms like ours are still closing on distressed properties.  So, while great deals are available, buyers need to work with very persistent and savvy agents.

With all our built-in entitlement programs leading to spending and revenue imbalances, fiscal disaster appears inevitable.  But, with the introduction of the much maligned Obamacare, we’re at least looking at trying alternatives, and trying is always better than not trying – ask any professional scientist.  No matter what, tough choices will have to be made, and housing and related home hospice care costs are right in the bull’s eye.

Driven by higher transportation costs, I think the real estate market will look far denser than it is today. Retirees will converge on city centers, since as a society, we are no longer able to afford the luxury of having each senior occupy an expensive single residence out in the suburbs.  A younger generation (Gen Y’s) will fill the newly vacated suburban neighborhoods, stabilizing prices but not driving much demand for new suburban sprawl.

Major cities will start to have skylines resembling New York’s or Vancouver’s, with endless towers of relatively cheap mid-rise, high-density housing being filled by the elderly.  New Yorkers boast of having peekaboo views of the park or the Empire State Building, while they live in urban boxes of non-descript mid-rise buildings.  Meanwhile, Vancouver has areas filled with hundreds of nearly identical towers in an almost blindingly futuristic montage.

Prices on a quality-adjusted basis will rise to reflect this new demand for condo units.  We will likely duplicate their mid-rise buildings and offer studios/efficiencies of a few hundred square feet to the elderly and the masses of modest-income, college-educated buyers.  So, while construction costs are not necessarily cheaper, the lower grade finishes and higher density make each unit affordable.  We’ll be able to provide regular health care monitoring to avoid the high cost of full-time hospice care, a bit like Japan.  Meanwhile, the younger people can stay close to work and use mass transit.

With current new construction hitting record lows, the housing market is efficiently adjusting supply to reflect demand.  Investors are eagerly snatching cheap rental condos up and they will likely be well rewarded.  It’s not pretty, but investors are helping to clear the market and normalize housing.  The key has been to find properties with the right return characteristics as we’re doing for our clients.  At the current furious rate of investor purchases, I’m betting on the market normalizing in 12-18 months, recovery being several years out.  Five year forward, properties closer to city centers will have enjoyed a few years of high single digit to double digit appreciation.  Those farther out, like the once fashionable exurbs, will be stagnant if not down.

As for where we’ll put these mid-rises, there’s still plenty of vacant land for urban infill, at least around downtown San Jose, San Diego and Los Angeles, California’s 3 largest cities.  Change like this won’t happen overnight, but for those who pay attention, we’ll definitely notice a proliferation of these buildings in 5 years time.

Unlike regular sales or even foreclosed real estate owned by banks (REOs), a short listing does not involve a motivated seller, one of the key elements in any successful transaction.  The nominal seller is ostensibly the current home owner who has lost the incentive, will, or ability to continue making structured payments to the lender on title.  Many eager listing agents, often “certified” to handle short sales, will take on these short listings where the current market value is below the amount still owed to the lender.  In short order, they put together a short sale package for presentation to the lender and prepare to list the property for sale.  Since these listing agents aren’t pricing a property for a regular market sale, they just arbitrarily list an artificially low price to attract a buyer willing to go through the process.

Meanwhile, the lender has little to no clue that a short listing is about commence, contently collecting mortgage payments either from the current home owner or some insurance agency like Freddie Mac.  Hence, they’re in no rush to foreclose and definitely don’t want to touch a short listing and get involved in a lengthy transaction.  Lenders are not staffed to handle these sales anyways, which are about as financially pleasant as the returns department at any department store.  Not only are they not making their anticipated interest returns, they’re now spending money to try to minimize the amount of money they’re losing on their loan.

On the other side of this ugly situation are the buyers, often first-time buyers.  While seasoned investors are throwing down all cash offers to entice the lenders to deal and have the patience of Job, first-time buyers, and even experienced home buyers, are usually unprepared for the harrowing process of a short listing.  The process is so unfamiliar and alien that most simply can’t grasp or manage the challenges, even if their agents had educated them.

So, unfortunately, these buyers go into these great looking deals that appear to be earnest offers to sell, while the actual sales intent is many months away.  Lengthy offers with tedious specialized addenda are submitted into a virtual black hole.  The overwhelmed processing departments of these lenders very reluctantly process the offers, taking months to respond.  And when they respond, they dryly write back the price expected from BPOs or AVMs, which can be 15-25% more than the listed price.  Then, unless the buyers accept the response as reasonable or eventually work out a compromise, they would dejectedly walk away from the deal, having wasted 3-4 months and tens of hours of document preparation and review.

For the fortunate few who get a reasonable approved price from the lender, they can expect to the close in 4-6 months.  And, for the intrepid few who go the distance in multiple rounds of negotiation, the process can take up to a year.  Considering how time consuming the home buying process is normally, this raft of short listings just leaves most buyers beyond frustrated, making these “deals” not really worth pursuing.

Warm Springs

Warm Springs shares the same zip codes as Mission San Jose but under a different high school. While Mission San Jose is one of the nation’s top 100 high schools, the houses prices are just as high, starting in the $900K’s. Warm Springs belongs to the Fremont Unified under Irvington high. The elementary schools give top performance and the middle school and high school have been making great improvement in the past couples of year. An entry-level single family home starts at $500K’s. They are also newer condos and townhouses in the area for young families.

Union

Union is a K-8 elementary school district that spans across San Jose and Los Gatos city boundaries and zip codes. 4 of 6 elementary schools are in the 900’s and both of the middle schools are close to 900’s. The high school is Leigh High in Campbell Union with API score in the low 800’s. With all the good students progressing from Union school district to Leigh High, I expect Leigh’s performance to keep advancing in the next few years. The starting price of a SFR in Union School district in San Jose city boundary is only $400K. As the school boundary is irregular in shape and not aligned with major streets, you should work with a realtor who’s familiar with the area.

There are also many elementary and middle schools that stand out from its school districts. Feel free to share them under comment