Real Estate Requests for Proposals (RFPs): an imperfect process

The  Home Seller process of selecting a Real Estate Agent is flawed.

Let's start by disclosing what the best tried and true method of picking a great Agent is: get a recommendation from a close friend or family member who has had a great experience with a particular Agent.  No rating system can determine how an Agent handles problem solving or, most importantly, what the chemistry is like during the complicated process of selling your most valuable asset.  Nothing speaks volumes more than a glowing testimonial or recommendation from a friend or family member.

Do-it-Yourself books commonly direct Home Sellers to interview 3 or more Agents and picking the one based on these 3 common criteria:
-marketing plan
-highest listing price estimate
-lowest commission

For those of you who do purchasing for Government Agencies, this sounds a lot like your typical "Request for Proposal".  Whether its a shipbuilding or bridge construction project, a mass furniture purchase or renovation job, people and committees are well accustomed to making selections in this manner.

It's actually a good process for committees or Boards, who purposely distance themselves emotionally and personally for the greater good of their organization, avoiding any conflicts of interest or other troublesome scenarios.

The problem for a homeowner is that the sale of their home is indeed an emotional and personal matter.

Sellers need to understand that there is a vast range of skills possessed (or not possessed) by Agents and that by using only the criteria listed above, chances for failure are extremely high.  In today's market, only 40% of listings taken actually sell so Sellers need every tool and skill necessary if they really do want to succeed. 

Highly successful, productive and reputable Agents not only earn more for their services (they are in higher demand) but they are able to demonstrate why they are well compensated and how the commission dollars get spent in innovative marketing plans.  They are also very realistic on pricing and would rather decline on a seller's listing than price beyond market reality as doing so only sets themselves and the seller up for failure.

I once read that during blast-off, one of the earliest NASA Astronauts had a momentary panic when he realized he was riding aboard a massive bomb- built by the lowest bidders!  Save yourself the panic and invest in an Agent with the right chemistry who can justify their cost and can use recent success stories to substantiate their claims! 

I saved a life today. It's really much easier than you might think.

I can literally say I saved a life today.  But 100+ other individuals did as well, having visited the Victoria Clinic of Canadian Blood Services.

I started giving blood 5 years ago, when a relative was diagnosed with hemachromatosis:  an excess of iron in the bloodstream.  This is genetic commonly passed down on the male side of the family.  The good news is a relatively easy remedy:  bloodletting.  My Doctor suggested donating blood, to deal with this possible condition (turned out that I do not have it) and also to contribute to the local blood supply.

Since that first visit, I have been back 32 more times and often with groups.  My Lodge of Odd Fellows brings a group of 5 or so every 2 months, usually capped with liquid replenishment at the local pub.  Today, I joined my friend and fellow Real Estate Board Past President Dennis Fimrite, who gave his 125th donation- to compliment his dad, Rod, who had given 175 times before recently dealing with cancer which makes him no longer eligible to donate.

175 (or 125) is an incredible number when you consider that one can only donate whole blood every 56 days.  That means Rod has been donated for at least 27 years and Dennis 19- provided they kept to the strict 56 day period.

Since starting to donate at the clinic, I have also become a volunteer once a month and am also on the Speaker's Bureau, where I give an educational presentation on the need for blood.  Here are some of the key points discussed:
-British Columbia uses more blood than it generates.  Per capita, we are the weakest Province in the country for donations.  In fact, BC imports blood from other Provinces just to keep up with demand.  We need to get better at this.
-whole blood only has a shelf life of about 35 days, although because of demand it is generally used within 5 days.
-blood can't be frozen, although the plasma can be separated and kept for a time.
-we do not possess the technology to replicate blood.
-the need for blood is high:  In emergencies, cancer patients can require 5 units,  internal bleeding 8 units, a car accident 50 units (!?!)
-ongoing treatment for cancer patients can require 5 units of blood weekly

You may think that blood is readily available.  Could you imagine this very possible scenario:  a technician in an Emergency Room opens the fridge, only to find there is not enough blood to restore life to a trauma victim.  That person could require the 50 units mentioned above, which would have to come from 50 different donors within the month- all needing to be the matching blood type.

Blood for transfusions can drastically improve someone's health also.  Or keep loved ones with you just a little longer.  When my dad was ill, transfusions gave him extra energy and provided us several extra precious days with him.  We had wonderful conversations and moments I will never forget.  We knew transfusions could not cure him but both times he received blood, I was proud of my own commitment to donate, knowing that someone else's family might benefit from my donation in a similar way.

To me, donating is a social experience.  I enjoy going with a group of friends, visiting and catching up.  Sometimes we make a fun wager on who will donate fastest (I owe Dennis $5 bucks today- his 5:50 beat my 7:00!).  Sitting around the table afterward with cookies and juice with further chatting is another bonus.

All this within a 60 minute visit every 2 months in a great atmosphere with people I know.  And I saved someone's life.

Please consider donating today.  If you haven't given before, it's easy and can be fun!  Call 1-888-TO DONATE

Victoria Real Estate just isn't what it used to be

As expected of a longtime Real Estate Agent, every day someone asks me "What's happening in the Real Estate market?".  The doom and gloom in the media seems to have died down, as reductions in transaction numbers and softening prices are no longer "hot news".

Here's my typical response today:  The market isn't white hot any longer.  Sales are still happening- to the tune of over 10 sales per day in the Capital Region- and prices are remaining surprisingly stable.  What the market feels like to me is about 15 years ago.  The sales numbers are relatively similar (prices, naturally are quite different) but most importantly, the "tempo" is similar.

Agents who have been licensed for 10 years or less have a different experience of the marketplace.  The local market started its upward trend in 2002, with prices doubling at 2007.  Sales numbers were exploding and the market was crazy!  During that time, an Agent's biggest frustration was finding property for their client or clients.  Most had sold their home quickly and at strong dollars but consequently had to rush to act on new inventory that was coming up.  Multiple offers were common, with buyers often losing out on several before finding success.

When 2008 rolled around, things started to change.  Properties were staying on market for longer and expiries or unsold properties were outnumbering successful sales.  Then the crash happened of late 2008/early 2009.  Prices tumbled and virtually everything stalled.  From an Agent's perspective, it was very interesting observing the specific areas which dried up and those which continued to remain strong.  A testament to which locations weather the storms better than others.

Then 2010 arrived:  sales numbers did not catch up to prior months but strangely, sales prices increased and the all time peak of average house prices were seen in the last quarter of that year at around $640,000.

Fast forward to today:  unsold properties outnumber sold properties so the success rate is less than 50%.  Properties take longer to sell, with far fewer showings than in recent markets.  Open houses are quieter and inquiries on print or sign calls has dropped to nearly nil.  But sales continue.  Properties priced well in the market still sell, often within the first 2 weeks on market.  Multiple offers are still seen, again on properties which are deemed to be "hot buys".  There are just fewer lookers out there and less activity.  Just like 15 years ago.

Many owners now are at the point where they could not sell today for what they purchased at back in 2008-2011.  In fact, prices now are inline with the 2006/2007 market.  What is in store?  Optimistically, we feel prices will remain stable in coming years.  For those waiting until the market picks up again, that wait might be as long as 5 years from now.

We'll still see sales in Victoria, though.  People move because their lives are improved in some way by a change in residence:  growing family, downsizing, relocation, etc.  And they'll still move, regardless of what the current market is doing or what the numbers are!

 Call or email me for more discussion on this topic or to chat about Real Estate in general.
Visit my YouTube channel, where you'll find weekly sales updates and resources including over 30 short Educational videos for buyers and sellers.

Found your dream home? You may be in trouble if your house isn't sold first...

Last week, I met a family who had fallen in love with a property we have for sale in an upmarket area.  It offered them space, quality, schools, and more- all in a waterfront subdivision of similar houses.  After their second visit, they decided they wanted to buy it.

Problem is, their house isn't sold (it's not even on the market) and they don't have the capability to arrange contingent financing.  Actually, they didn't think they had a problem since no one in past had really explained the pitfalls of their predicament.  It then dawned on me that consumers believe this is the way transactions occur, so here are some pointers on why it's a poor solution:

Making an offer "subject to the sale of my house" is a fix-all no doubt created in past for those who are hesitant to sell first for fear of being homeless.  "What happens if my house sells and I can't find something else..." is the usual concern.

Even worse is a soft market.  The seller knows what the market is like:  they are in it!  For a buyer to make a Subject To offer, they are really saying "I'll beat you to the finish line".  But there's an old saying:  "when the tide goes out, all the boats go with it", meaning the probability of success is equal.

Here are the pitfalls of "Subject to Sale" offers:
1.  The seller is in no way obligated to accept such an offer
2.  If they did, rest assured there will be little or no negotiation room.  It's a weak offer, so the seller will expect full pop when granting you that luxury
3.  Subject to Sale offers always have a "Time Clause" attached, basically a right of first refusal.  The home remains on the market and when another buyer is found who is able to purchase with cash, you will be forced to decide within a specified time frame whether you'll fully commit or back off.
4.  You will be required to remove all other conditions (financing, building inspection, review of title and other documents) within the usual timeframe of 1-2 weeks, meaning you will be spending $500-$1000 in research with the likely possibility your house will not sell.
5.  As time goes on and the dream house remains unsold, you will start wondering about it's value in the marketplace.  If you have already agreed upon a higher sale price, the seller will hold tight waiting for your sale- knowing they did better than the market dictated.  And, if successful, you have paid more!

In every transaction, there is a buyer and there is a seller.  Subject to Sale is a benefit for the buyer, in theory allowing them to buy without having sold first.  Think of this from the seller's perspective, though:  why would a seller put their house on "hold" when there is a higher probability of an unencumbered cash buyer waiting in the wings?  If they did accept such an offer, the seller will lose potential buyers- better qualified buyers- who will not want to proceed knowing there is a chance that they will not be able to buy the house because of the prior commitment.  You should note that many Agents will not show their Buyers homes with Subject to Sale offers in place since they would not want their client to get their heart set on the home, only to have the first party follow through.

From an Agent's standpoint, Subject To offers are imperfect because the risk level is high.  Basically, the Agent conducts all of the tasks as in a conventional transaction (assisting the buyer perform due diligence- reviewing title, Municipal files, arranging appraisal and building inspection) with a high probability that the sale will not proceed.  This could be a solid 8-20 hours of hard work squandered on an unsuccessful sale, not to mention the eventual emotional counseling for the disappointed client.

There are no formal records on the success rate of Subject To offers since only the eventual sales are recorded on the MLS system- it is never known how many unsuccessful offers existed prior to the sale.  Based on conversations with other Agents in the past 20+ years, I would doubt if the success rate is as high as 30%.   This is likely the reason seasoned Agents or top performing experts advise against them.

The Subject To is a terribly weak offer.  It's actually not even a contract- it is an "option".  Basically, "I will buy your house if I can sell mine".  Whim and Fancy, as it's known- it has the same merit as "Subject to me winning the lottery", especially in softer markets.

What's the solution?  If you are seeking a relatively common home (ie. traditional styling, size, features) and your Agent can demonstrate such homes enter the market regularly (it is easy to pull up such listings in MLS history), you are well advised to get your home on the market first and gauge interest.  You'll either know in days how marketable the house is and the Agent will get a sense of whether it will happen.  Just be sure to negotiate a longer Possession Date when the offer comes thru, giving you time to find your next home.

When you find that home, you'll know exactly how much money you have to spend.  You are also in a position of WANTING to buy a home instead of HAVING to buy a home- a big difference.  Best of all, you will significantly overpower any other suitors who are encumbered with a property to sell.  For Sellers, "Surety" trumps cash every single time.

About the people I met last week:  They have a phenomenal home in a good area but are massively overbuilt.  In another area, the home would be $900,000-$1,000,000 but they are currently surrounded by $500,000-$600,000 homes.  They want $850,000 to be able to move to the dream home and the likely value of their home is closer to $725,000.  They don't want to sell first for fear of being homeless, want more than market value for their home and will likely attempt to lowball the dream home.  And they will only make their offer Subject To.

Sadly, the dream home won't go to those folks.  Just today, an interested party viewed it and are preparing an offer- they do not have a house to sell and do not require a mortgage.  These people will end up owning the other folks' dream home.

Call or email me for more discussion on this topic or to chat about Real Estate in general.
Visit my YouTube channel, where you'll find weekly sales updates and resources including over 30 short Educational videos for buyers and sellers.

Tony Joe is a third generation Victorian and has practiced Real Estate since 1991.
He has been awarded the Victoria Real Estate Board's "Special Gold" and "President's" awards for consistent top performance and remains in the Top 10% of Victoria Agents.
Internationally, he has received the coveted RE/MAX "Lifetime Achievement" award and was recipient of the RE/MAX Western Canada "Special Service" award in 2009 for service in the industry.
Tony served as a Director of the Victoria Real Estate Board for 3 terms and was President and Spokesperson for the Association in 2008.
He remains a busy Agent with his team of 4 specialists while also volunteering on the community Boards of the Victoria Hospice Foundation, Anawim House, Victoria Dragonboat Festival and the Chinatown Night Markets.
Currently he is a sought-after sales trainer and instructor for the British Columbia Real Estate Association.
Tony resides in spectacular Oak Bay with his partner Susan, 2 kids, 2 dogs and his Star Trek collection.

Calgary vs. Victoria Real Estate review

I just spent 2 weeks visiting friends in Calgary.  While there, I reviewed the Real Estate market in what is widely regarded one of the Nation's strongest markets and a thriving economy.  How does Victoria compare in sheer Real Estate sales numbers?  See below- first, let's review the July 2012 local stats to date.


Victoria Real Estate sales statistics, July 30 Month-to-Date

MTD July 2012

Sales                         481

Listings                     1114

Inventory                  4939

July 2011

Sales                         523

Listings                     1374

Inventory                  5094

At best, we'll closely match the sales number of July 2011.  A very interesting result to the month considering how strong it started off.  Let's also remember that the market started improving about this time last year so very soon comparing stats to 12 months ago will be of little value.  We expect the numbers for the rest of the year to match 2011 figures.  Stats which cause pondering are the total inventory which for once may finish below July 2011 and also the fact that new listing numbers are on the decline.

Calgary vs. Victoria Real Estate Review

Several years ago, I attended a spring Real Estate conference in Calgary which seemingly had very few local attendees. The reason was the market was white hot, with properties selling the moment they were listed and Agents scrambling to serve their clients.  Multiple offers were the norm and prices rising daily.  

Fast forward to today.  Every Canadian market saw correction in 2008/2009 with virtually all property values now slightly below the peak of 2007/2008.  In the case of Calgary, the average price for a single family home is around $480,000 or about 5% below the 2007 peak.  In Victoria, the average single family home is now $606,000 or 3.4% below the peak of 2010.  

Peak of 2010?  Most presume prices peaked in Victoria before the 2008/2009 crash but prices did indeed rise afterward and have adjusted little.  Strange town, our little Victoria!

As a native Victorian, I appreciate all of the amenities a city like Calgary has to offer.  Great food (fresh oysters 1000km from shore, anyone?), shopping and entertainment are just a start.  As a parent, I also marvel at available family recreation including rec centres, sports, lakes and skiing not far away.  With a Metro population of 1.2 million vs Victoria's 340,000 it's easy to see that the town has a vast audience to serve.

While in Calgary, we typically stay in a suburb called McKenzie Towne- about 20 minutes from downtown in moderate traffic (an hour during rush hour!).  It's a lovely place with a fine mix of detached homes, town homes and condos and serviced by its own sizeable Town square with Sobey's supermarket, banks, churches, restaurants & pubs, and so much more plus walkways and easy proximity to 130th which has requisite box stores such as Home Depot, Rona, London Drugs and Sport Chek.  To me, it's a fine example of what Westshore should be and likely will be once Victoria's transit issues are addressed.

Calgary area Real Estate statistics are very intriguing.  Take a look below, compared with Victoria:

Calgary June 2012

Sales                        2200

Listings                     3312

Inventory                  5712

Victoria June 2012

Sales                         637

Listings                     1449

Inventory                  5189

Some observations:

• With over 3 times Victoria's population, it makes sense that Calgary generally has just over 3 times the number of monthly sales
• The number of new Calgary sales relative to new listings is low:  a ratio of roughly 1:1.5 versus Victoria's 1:2.3. There is much more "churn" in Calgary's market.
• Most alarmingly, Victoria's total inventory level is very high relative to Calgary's- in fact, it is not far off a city triple it's size!  There is an 8 month supply of Victoria listings (total inventory divided by sales in the month) versus Calgary's 2.6 month supply.

Other observations:

• Calgary sales are currently about 16% above last year yet prices are up only about 4%
• Even with Victoria's massive oversupply of properties, prices remain stable with a minuscule 0.34% drop in its 6 month average

You are likely asking yourself:  With such an oversupply in inventory, why haven't Victoria prices tumbled?

The reality is, many of Victoria's current listings will not sell just based on sheer numbers.  While sales continue, it is just a clear indicator that most properties are priced beyond what the local market will support.  Whether these are sellers simply speculating, Agents who take listings just for something to post or a combination of both, the reality is that many current listings need not be on the market.  Even when compared to Calgary, a strong but by no means "white hot" market, the number of Victoria listings should be closer to 2000, not 5100.

In comparison, the number of monthly sales relative to population is appropriate.  This is especially impressive when considering Calgary is a growth town with increasing population and many economic attractions.

I've said this countless times before:  Victoria has a diverse economic makeup.  We are not a "One Industry" town, rather one which benefits from net migration as a result of :

-Government

-Tourism

-Military

-Lifestyle (weather, anyone?)

-Education

-Technology

Those who are waiting for significant price drops will be disappointed.  If you are in the market for a home, do yourself a favour and buy now while inventory is high so you can move in sooner and enjoy home ownership!

What is exactly is happening in Victoria Real Estate??

July 23, 2012 Victoria Real Estate Board statistics Month to Date

MTD July 2012

Sales                          371

Listings                       857

Inventory                   4900

July 2011

Sales                          523

Listings                      1375

Inventory                   5094

From the stats above, sales in Victoria seem to be doing just fine.  All may not be as it seems, however. The statistics from last week, July 16, reported 258 sales so far in the month meaning there were only 113 sales for the week- in other words, July started strong but has slowed.  Even the number of listings is coming in slowly, at just 857 currently versus July 2011's total of 1375.

Just what exactly is happening?

Those who have read my posts before know I am not prone to "doom and gloom" reporting.  I have, in fact, been criticized for an annoying positive outlook (I learned this from Googling my own name!) although strangely my assessments tend to be congruent with market trends and results.  So here's my opinion about the current market:

Sellers

Don't dispair.  Properties DO sell.  Even though above I've said "only" 113 sales transpired in the past 7 days, that's still 16 sales each day on average.  The key is that not every property sells.  Just because a property is listed on the MLS system does not guarantee a sale, as is evidenced in the weak listings-to-sales ratio this entire year.

In a strong seller's market, we were accustomed to seeing 5-10 viewings per week (or more) until a sale transpired weeks later.  Today, the sale still comes weeks later but traffic can be as little as 1 per week or every 10 days.  A reminder that heavy traffic does not guarantee a sale.

The key to sell today is and always remains price.  There is no amount of marketing, promotion, packaging or agent effort which will overcome an overpriced listing.  In today's market, being anything less than sharply priced will result in a long market time and worse- an expired, unsold listing.

Also, price reductions after 30 days or so on market have little effect, as do reductions in small increments ie. $5000 steps.  This is a market where a seller literally has to venture into a totally different price level in order to succeed.  In other words, there's no point going from $565,000 to $559,000:  it is wise to drop to the next segment which is $549,900.  Your next step would be a potentially painful $525,000 so best find that sale sooner rather than later.

So, price your property correctly from the start for an expedient sale at top value and beware of Agents competing for your business by quoting high or unrealistic pricing.  You really do need to be the first sale in the area, otherwise other sales at lower prices will set your maximum achievable value.

Watch our YouTube video "Pricing your home"

Buyers

How much cheaper can interest rates become?  Many overlook the opportunities now available for the very first time.  You are experiencing record low interest rates combined with high inventory + great selection = ideal buying condition.

Seize the day and go ahead with the purchase of that property which ticks most of the boxes on your list.  I can't tell you how many times I've seen in the past 21 years people regret not acting on a purchase just because they thought better opportunities lay ahead.

By the way, just because inventory is high and prices softer doesn't mean sellers are compelled to take massive losses on their properties.  We received an offer last week 20% below list price!  Guess what:  in almost every case, if a seller can't get what they need to move (i.e. paying off their mortgage and other fees), they'll simply decide to stay.  Just because you made an offer doesn't mean the seller is obliged to either accept it or work with it.

There is a chance that whatever property you buy will devalue slightly over the course of time (ever heard a Real Estate Agent say that before?) but one thing is for certain:  as long as you need a place to live, it makes sense being your own landlord.  The longer you live in your home, the less the effects of the market will have on you.  Even if values go down 5% (BTW it has not gone down more than 5.5% in any given year in 25 years- values reduced in only 5 annual periods for detached homes since 1988 ranging from 0.04%-5.47% vs 9 annual periods of double digit growth), your loss is only on paper as long as you stay in your home.  PLUS- low interest rates mean less of your payment goes toward interest so your principal is being chipped away quicker than before.

Don't let pride stand in the way of your next move.  I'm not suggesting you overpay for a property but rather don't waste your time seeking steals or giveaways.  This is Victoria after all and there are many reasons why we remain the second highest priced Real Estate in Canada.

Watch our YouTube video "How much of a price discount can I expect?"

and "I want to wait until prices hit rock bottom

Buyers who need to Sell first

This is the third and often overlooked demographic in the marketplace.

Unlike your first home purchase, you are now burdened with the fact that you need to sell your home first in order to free up equity to purchase your next home.

Do yourself a favour and avoid "subject to sale" offers.  You need to realize that with such a condition in place, you have no negotiation strength whatsoever and even worse- the "Time Clause" aspect means at any time the seller can sell the property to another party without your ability to defend  your position.  The very best you'll have is 24, 48 or 72 hours to decide if you will step away or if you have the resources to continue.  And if you had those resources, why didn't you utilize them to begin with?


Always sell first for these reasons: 1. you'll know exactly how much money you have to spend, 2. you will be in a liquid position and in a strong negotiation position, 3. you will not live in fear of someone else snatching your dream home just because you couldn't act fast enough.

As mentioned above, the reality is you may need to take less for your home than expected in order to move upward in today's market.  Statistically, consumers buy 50% upwards meaning those selling their $400,000 home buy a $600,000, those selling their $600 buy $900, etc.  If statistically prices are down on your $400,000 home, they will be on your $600,000 purchase as well.

Watch our YouTube video "Buying Up in a Down Market"

Summary

I have said many times in presentations, seminars and reports that people do not move because the market says so or solely because of market conditions.  People move because something in their lives can be made better by a change in address.  Growing family, retirement downsize, changes in family dynamic: these are the reasons why people sell and buy.

Watch our YouTube videos:

Buying Up in a Down Market

Home Buyers: Buy using your head or with your heart?

Market Timing

How changes in mortgage rules will affect your buying power

TonyJoeRealEstate on YouTube