Archive for the 'Buying' Category
Buyers and Sellers Talking
As an agent, part of my job is to be an intermediary. My client communicates through me, I then relay a message to the other agent involved and they then communicate that information to their client.
Buyers and sellers typically don’t talk to each other directly and, honestly, I prefer it that way.
But how would a buyer and seller communicate directly if there are agents involved? And what can go wrong if they do talk to each other directly?
The most common way for a buyer and seller to see each other and interact is if a seller does not leave their home for showings. The seller thinks they’re being helpful by following the potential buyer and their agent around, offering information on what they’ve done to the house over the years. And at times that commentary is useful. But often it leads to one or both parties sharing more information than I’d like to see.
A buyer may gush about how much they like the place and how their lease is ending soon and they need to get settled. A seller may say that they have another house that they’re moving too and they just need to sell this one to get away from the cold winters.
I’ve seen both of these situations, and others similar. And what exactly is wrong with this banter back and forth between a buyer and seller? Well, one of them usually gives too much information and hurts their negotiating position if the buyer decides to put in an offer.
Additionally, you have situations where one party is open about information and the other is an adversarial personality, so they’ll use the information to their advantage when negotiating.
Real estate attorneys often advise their seller clients to sign all closing paperwork in advance so they don’t have to attend the closing. I’ve seen many instances where there are issues with a walk through or one of the parties just says the wrong thing at closing, leading to more difficulty just as ownership is about to transfer.
In certain instances it may help for a buyer and seller to talk. But this is only usually the case if both are happy, warm and fuzzy personalities and neither is viewing the purchase or sale as a business transaction. Emotions run high in real estate and it is often very difficult for a buyer or seller to mask their true feelings.
Your real estate agent acts as a buffer and confidant. Let your agent filter the message you’re trying to deliver so you aren’t putting yourself at a disadvantage. And try not to meet the other party directly. You never know how what you say will be perceived or used against you during the transaction.
Sounding the Alarm
Last week we received a notice from the City of Hartford. It is time to renew our house alarm registration with the City’s Department of Emergency Services and Telecommunications.
Residents of Hartford are required to register their alarm with the municipality. We pay $15 per year, which not only gets us into the systems, but also buys us free emergency responses for the first two false alarms within a 12 month period.
There is no policing of the registration in Hartford, but if the City responds to a call and discovers a non-permitted alarm there is the potential for a $99 fine for not registering, on top of the $90 fine if the emergency turns out to be a false alarm.
Other towns have their own laws, so the rules do vary throughout the region. For example, the Glastonbury Alarm Ordinance requires an annual registration with an initial $25 fee and then $10 per year to renew. Glastonbury also fines for frequent false alarms, though they have escalating fine amounts instead of Hartford’s flat rates.
Using Assessor Data to Bid
Buyers in search of a bargain can be resourceful in finding support for a low bid. Zillow is the most common “proof” offered as justification for a lowball offer since Zestimates almost always err on the low side (which makes sense considering their business model). But every now and then someone tries to argue that a property’s taxable value is an important data point.
Towns in Greater Hartford set taxable values once every five years during a revaluation. They do their best to put a current market value on each property, but they use a statistical process that has an element of randomness and is not as accurate as actually putting the home on the market and collecting offers.
While talking to a local Assessor about the revaluation process, I also learned that in his town he tries to assign “market values” somewhere between 5% and 10% below what a property would actually sell for. We didn’t get into the specific reasons why, but from a practical point of view this seems important so that everyone in town doesn’t challenge their tax assessments. I also got the sense that this was a standard practice that was taught in assessor school.
What I’m trying to say is that the value of a property found in the Assessor’s database is almost never relevant to a purchase negotiation. That number is usually out of date, and was never super-accurate in the first place.
Forcing your agent to use that as justification for your opening bid (after they try to convince you otherwise) is not a winning negotiation strategy because it signals that you are irrational. You’re better off portraying yourself as inflexible by supporting your bid with a statement like “25% below the asking price is all I’m willing to pay because that’s all I feel the home is worth.” You probably won’t get the house using that strategy either, but at least the seller and their agent will respect your honesty.
Just so you know, sellers prefer not to deal with irrational buyers. You never know what they’re going to do, and whether they are going to follow the local conventions of a deal. So if you are prone to bursts of irrationality, then it will be in your best interest to keep it hidden until after the deal is signed.
One more point on the Assessor’s market value data. The town in which you’re looking for a home may have done a revaluation recently, and may have made the new “market values” publicly available on their website. For example, both Hartford and West Hartford updated their values in November of last year. Even though those numbers are fresh, and one could argue that it would be rational to use them in a negotiation, I would still advise against it. They are still systematically low, and they still contain an element of randomness. Most importantly, listing agents are likely to respond poorly to the argument that the town’s value is relevant, even if it’s not completely crazy.
Interest in Landlording
Landlords are required to follow rules while handling the money of their tenants. One of them relates to the security deposits that they collect when someone first moves in. Tenants are supposed to earn interest on their deposits at a rate defined by the state.
For many years (since 2002) the state held the required security deposit interest rate at 1.5%. This page on the CT Department of Banking site shows the historical interest rates for a wide variety of deposits held in the state of Connecticut. As most everyone knows, it’s been really tough to find a 1.5% interest rate for deposits over the past few years. So landlords have been out of pocket each year to make up the difference. It’s not like it’s a huge amount, the entire 1.5% on a $3,000 security deposit would be $45, but still.
The state reduced the rate dramatically in 2012 to 0.16%. This is more in line with the current interest rate environment, so in that sense it’s long overdue. That same $3,000 security deposit will now only earn $4.80 per year.
But the bigger question is whether or not your landlord is actually paying interest. We would hope that the larger, professional organizations know about the law and comply with it. But the mom-and-pop landlords may not actually know what they’re supposed to be doing. We’re frequently surprised at how fast and loose some landlords seem to run their businesses.
Keeping up with the various rules regarding landlording was one of the main reasons we exited the business after only two years. It really is a commitment to do it right, and for us to be renting a single unit just didn’t make sense. We could see how it would be different if we made that our full-time job, or hired out the management to professionals, but neither of those options were right for us.
It’s actually a good time to be a multi-family property buyer right now. Prices are down overall, and in the more urban towns there are plenty of opportunities for distressed buildings. Many need a cash investment to bring them up to rentable condition, but that’s part of the reason they’re so cheap. People with cash to invest (and who want to earn more than the 0.1% the banks offer) may want to consider real estate. But keep in mind that it’s a tough business that will require time and attention.
News from West Hartford
At the end of last week there were two news stories in which we had the opportunity to contribute.
First was a piece in the West Hartford News about the market conditions in West Hartford. The 2011 revaluation and associated grand list are almost complete, just waiting on the final appeals by individual property owners. That process has not seemed to be a big concern to home buyers as sales activity is up over last year.
The final piece of the puzzle will be what the town leaders decide to do with the results of the revaluation. Will they implement it immediately, or phase it in over time? Our December analysis of where the mill rate might fall if the revaluation were implemented immediately and the budget remained flat continues to be a reasonable approximation.
The second West Hartford news item we contributed to was the analysis of the announcement of a “Neighborhood Market by Walmart” coming to Bishop’s Corner. Having lived far enough south to be familiar with Walmart as a grocer, and having studied Walmart extensively at business school, there are two things that jump out at us:
1. Four grocery stores in Bishop’s Corner is too many.
2. Walmart will have a price advantage over the other three.
Walmart will likely pressure Big Y the most since they are both general grocers, but attract some of the shoppers from the other two as well. Whole Foods seems like they would be least impacted by Walmart due to their high-end image, while Crown would fall somewhere in between. If any of the three established grocers are marginal operations, then Walmart’s arrival seems like it could be the catalyst to force them out.
Pushing one of incumbents out will obviously upset people – loyal shoppers and Walmart-haters alike – but that’s the way we see it. What do you guys think, can four grocers make a go of it on one intersection?