Greater Hartford Real Estate Blog

Last week I reported on real estate market statistics for the spring in a number towns in the Greater Hartford area. Most towns had seen a significant decline in the number of closed sales when comparing April through June of 2008 to 2007.

While those statistics are troubling for sellers, they are also troubling for those who earn their living in the real estate industry; your local real estate agent, closing attorney, mortgage broker, home inspector, appraiser, and insurance broker.

I was curious to understand how bad things really are on a transaction-per-agent basis, and I have access to the data, so I did a little digging. The results are startling.

Let me explain this little chart to you.

The CTMLS is a big database that agents pay to join and it tracks most of the closed real estate transactions in most of the state. Commercial agents tend to use other methods of tracking their deals and Fairfield County has their own MLS to track their transactions, so they won’t be included in this analysis.

Anyway, there are 20,000+ agents that pay to have access to the CTMLS. Some of those people are brokers that manage offices and appraisers, so I estimated those groups to be 5% of the members and took them out of the analysis, as they aren’t actively trying to sell real estate. That leaves us with approximately 19,250 agents actively trying to sell real estate in a significant portion of Connecticut.

Then I looked at the number of closings this year for single family homes, condos, multi families, land, and commercial. Each deal has a buyer and seller represented, so the number of “sides” that agents share is actually double the number of closings. Remember, this doesn’t include Fairfield County and most commercial deals.

And now the results, getting to how much the average agent has earned this year PRE-TAX.

For each sale, the total commission is split between the buyer and seller brokers. The agent then takes their check back to the broker and it’s split again, this time between the broker and the agent. I estimated the split between the brokers to be 2.75%, as we typically see 2.5% or 3% offered in the MLS. I also estimated the split between the agent and their broker to be 70%. This split between the agent and the broker is a little bit more of a guess, as each broker has different split plans which are closely guarded. So the 70% is a rough estimate and may actually be a tad high.

On average, for my analysis with my assumptions, a real estate agent in the CTMLS has taken home a little less than $7,800 for the entire year. And that is PRE-TAX. Oh, and that doesn’t take into account the expenses for getting to a closing (advertising, membership dues, gas, etc.).

There are many agents that have done well more than the 1.4 closings this year that averaged in my chart. Which means there are many agents that have done no closings this year.

Last year, the National Association of Realtors saw a decline in membership for the first time in 8 years. I wonder what will happen locally to many of my real estate colleagues? It truly seems to be survival of the fittest right now.

With the end of June came just about the end of the spring real estate market. So how did we do in the Greater Hartford area when comparing single family home sales in the second quarter of 2008 to the same time period in 2007? Take a look for yourself…

All data came from the Multiple Listing Service for the time period of April through June (2007 and 2008) and is deemed reliable, but not guaranteed.

With agents complaining about the market being slow, we can see why. The number of closed sales is down in almost all towns researched, with several towns seeing declines in closed sales of 20% or more. The market was lethargic in many areas this spring.

We are also finally starting to see median sales price declines as well. There is a wide range in median sales price declines. A few towns saw small increases.

Days on market (DOM) is also increasing, but modestly. Most towns did not see more than a week or two added to selling time, if there was an increase.

Most surprising to me is the Months of Inventory. Many towns have moved back into Neutral Market territory (favoring neither Sellers nor Buyers), which is historically defined as 3-6 months of inventory. With declines in the number of closed sales, this could mean one of two things; fewer people decided to sell this year or people did try to sell and took their homes off the market if they were not successful after a specific time period.

Historically, sales in July and August are slow, as people are busy with summer vacations and other activities. It will be interesting to see how the market does over the next few months.

If you are looking for data for another town which I did not include, just ask and I’ll be happy to provide it.

Today we’re starting a new segment here on the Greater Hartford Real Estate Blog, Q&A.  Our first conversation is with our very own Kyle Bergquist, who is a financial advisor with Conifer Investments.

Greater Hartford Real Estate Blog (GHREB): With prices either stable or falling, there seems to be a fair number of young professionals looking to buy their first home.  How would you recommend folks prepare for their purchase?

Kyle Bergquist:  The single most important step is making sure you can actually afford the houses you look at, and will end up buying.  I recommend going through a budgeting excercise to help you decide how much you are comfortable paying on a monthly basis for your mortgage and other home-related expenses.  The monthly mortgage figure, combined with the mortgage type and rate, sets the price range as you begin your home search.  Many people rely on their mortgage broker to tell them the maximum they are qualified for and then use that value in their search.  I’m not sure how that would work out with today’s mortgage market, but until recently it would have resulted in you buying a house you couldn’t actually afford.

GHREB: What sorts of items do people need to consider in their budget?

Kyle: Start with your income and then begin subtracting out expenses.  It’s easy to forget items, like auto insurance, that are paid infrequently.  We use our fireplace in the winter so two expenses we have are firewood and annual chimney cleanings.  They are once-a-year bills, and I’ve forgetten them before.  Take a quick look through your checkbook and credit card statements to make sure all your current expenses are considered.  Also think about expenses that only homeowners pay, for example water bills and garbage collection fees.  Your agent should be able to rattle off the list of typical expenses for the towns in which you are looking.  There are also some online budget worksheets (CNN Money, About.com) that can be used to structure your effort.

GHREB: We’ve talked about making sure the people can afford the homes they buy.  What about the initial purchase?

Kyle: During the purchase process, buyers need to have money available for not only the down payment at closing, but also a number of other expenses as well.  Some, like the first and second deposits that accompany an offer to the seller are actually early contributions to the down payment  They go towards the purchase price and become equity in the property.  Others, like the expenses associated with home inspection, mortgage commitment and appraisal are costs of buying real estate and will never be recovered.  Finally, buyers typically have to prepay some of their expenses at the closing table.  Property taxes and homeowner’s insurance are usually held in escrow at the request of the mortgage company.  Costs paid by the seller that will benefit the buyer are equitably divided, so for example, the buyer ends up paying for all the heating oil in the tank.

You’ll want to talk with your agent to get a sense of the initial deposits that accompany offers in your area and typical home inspection costs.  Your mortgage broker is the best person to ask about everything else.  They can walk you through the other expenses that you’ll probably see at closing, like a preview of the Good Faith Estimate that they will provide after your offer is accepted.  Some people also like to set aside some money for repairs and other work they want have done immdiately after the closing, so keep that in mind also.

GHREB: Anything else that you would recommend?

Kyle: I guess the only other point I want to make is that when you move into a home, there are going to be expenses that you might not expect.  A lawnmower.  A bed and nightstand for the guest bedroom.  And lots of stuff to hang on the walls.  Leave a little extra room in the budget for the incidentals and don’t be afraid to get creative until you can afford what you really want.

GHREB: Are you available to help folks out with their budgets?

Kyle: I’d be happy to sit down and talk with your clients.

GHREB: Terrific!  And thank you for your time, Kyle.

Kyle Bergquist is a financial advisor at Conifer Investments, a boutique investment firm that specializes in folks with complex financial situations like multigenerational families and entrepreneurs.  Kyle is also a licensed REALTOR and supports Amy’s residential real estate practice.  He is a regular contributor to the Greater Hartford Real Estate Blog and can be reached at KyleB@AmyB-RE.com.