FSBO on a Dead End Street

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FSBO

CC Use of Photo by Flckr User "Images_of_Money"

They’re called “Fizbos.”

FOR SALE BY OWNER.

They’re the classic end run for cash strapped homeowners who refuse to pay a big fat commission to a real estate agent. Unfortunately, this is a little like DIY dentistry. You can pull that aching tooth with a piece of string tied to a doorknob, but you are definitely not going to like the experience more than the conventional alternative of seeing a dentist.

Let me back up and say that I fully understand the attraction every homeowner has to the FSBO alternative. From the outside, the steps to selling a house look pretty simple. You decide on a price, put up a sign, and show the property to people until someone wants to buy it.

Frankly, from the inside, that’s pretty much all that many lousy agents do.

It’s not rocket science and few agents are rocket scientists.

Assessing the difference between the two approaches of doing it yourself or hiring a professional must include an evaluation of your skills and understanding what you value most. For example, I go to the dentist when I have a toothache, but design and oversee my own kitchen remodels. I value pain relief and expediency in the former and enjoy the protracted process and hands-on decisions of the latter. I also have no experience as a dentist and lots of experience as an interior designer.

As a potential home seller, if the cost of the sales commission exceeds your expectations of an agent’s added value and your appetite for executing the process, then by all means, do it yourself!

We can even express this evaluation as an equation.

If Commission > Agent’s Contribution + Your FSBO Effort, Then = FSBO.

The values for terms “commission,” “agent’s contribution,” and “personal execution” are crucial. Lets look at each of them.

The Commission

In the State of California, agents cannot be paid directly. They must be paid through a broker. It seems like an arbitrary point, but matters greatly when we begin to discuss commissions.

Sellers can expect to pay between 5% and 7% for representation. This money goes to your agent’s brokerage, who then splits it with the buyer’s agent’s broker according to terms you dictate. The respective brokers then pay the agents involved.

As part of your listing agreement, you and your agent will decide how much of that commission you pay will be split with the broker whose agent brings you a buyer. Often, but not always, the commission is split evenly. Again, your agent’s broker shares the money you pay in a commission with the buyer’s agent’s broker. That broker, in turn, pays a portion of it to the buyer’s agent.

All told, there are four parties paid from your five to seven percent commission.

They are the broker for whom your agent works, your agent, the broker for whom the buyer’s agent works, and the buyer’s agent.

In the context of your FSBO decision equation, the “commission” is either half of the 5% to 7%, assuming for a moment that an agent brings you a buyer and you compensate that agent’s broker for it, or the total 5% to 7%, if a buyer comes to you directly.

Keep in mind that buyers don’t pay commissions. For that reason, they virtually always have representation in a purchase transaction.

Stated differently, because the seller pays for a buyer’s agent’s services through the commission fee, there is no incentive for a buyer to not use an agent.

If you don’t plan to pay any commissions to any brokerage, then ask yourself what incentives are you offering to a buyer to not use their agent?

  • Are you offering your property at a lower price? (If so, you’re undermining your initial objective, but that really should be a separate point.)
  • Is your price so much lower that there is value for the buyer to navigate the process without an agent?
  • Is the value of your asking price so much better than the competing properties that a buyer might be willing to pay a broker himself or herself and still feel like they are getting a deal?

Ultimately, if you are going to pay between 2.5% and 3.5% in a commission to a buyer’s agent’s broker, you’ve just halved your savings and placed yourself at a strategic disadvantage because your buyer will be represented and you won’t.

That savings may still be acceptable to you as you work through the equation. Let’s fill-in some more blanks.

The Agent’s Contribution

As I’ve already said, many agents trying to sell a home will just decide on a price, put up a sign, and show the property to people until someone wants to buy it

But a unique agent, someone who cares about your goals, takes pride in his or her work, and has the breadth of knowledge and experience to successfully sell your property in the least amount of time and for the most amount of money, will do more than just put a sign in your yard and hold an open house.

True marketing requires them to work with you to properly prepare and present your home in the absolute best light based on consumer insights and current housing trends.

They counsel you on buyer expectations and involve appropriate specialists to wisely improve the good qualities of your property.

They professionally photograph your home and create print and web collateral. With 88% of all home buyers now starting their home search online, excellent images and marketing copy is critical.

The skilled agent will personally show the property to all prospective buyers through brokers’ tours, open houses, and private appointments. At every opportunity, they will accentuate your property’s best features and, more importantly, benefits they bestow when compared to other available homes in your neighborhood. Buyers need to hear the anchors of how great your home is, not be left alone to have personal reactions of “like” or “dislike.”

A true real estate professional will bring you the best offer possible, negotiate strongly on your behalf for a good deal, and then shepherd the agreement to a successful closing through the gauntlet of inspections, objections, appraisals, and heart-stopping episodes of buyers getting cold feet.

It’s also about helping you, the often stressed-out seller, confront and rationally navigate your worst fears about the process, including buyers’ unpredictable behavior and sometimes unreasonable demands.

Your FSBO Effort

We’ve discussed the value a skilled agent adds to the marketing and sales process. The question is how much of that are you capable of executing on your own?

According to 2011 NAR Survey of Home Buyers and Sellers, the following were the most difficult tasks for sellers as reported by the sellers themselves:

  •             Getting the right price…  12%
  •             Understanding and performing paperwork… 11%
  •             Having enough time to devote to all aspects of the sale…. 6%
  •             Preparing/fixing up home for sale… 5%
  •             Selling within the planned length of time… 5%

Objectively ask yourself how good you are at each of these reported rough spots and factor that into the equation.

Are you able to research comparable sales and arrive at a realistic asking price?

Do you understand local, state, and federal real estate laws and are you comfortable with the paperwork and procedures?

Are your Sundays free and does work allow you time for midday showings?

Do you have a sense of what your home needs to look its best and can you find the tradesmen who can execute it?

Is you event horizon open ended?

The Calculation

Experience has taught me that most people underestimate the value of a quality agent in a real estate transaction and overestimate the savings of going it alone. However, that’s not their fault.

Many agents have not explained, justified, or earned their portion of the commission that sellers pay.

The fact is that in the 2011 NAR Home Buyer and Seller Survey, of the roughly 4.2 million homes sold, about 10% were FSBOs. The median difference in final sales price between an agent represented property and a FSBO was 30%.

In San Francisco, as of January 2012, the median single-family home was $655,000. Thirty percent off of that is whooping $196,500. A 7% commission is $45,850. That’s a difference of $150,650 that would go into the seller’s pocket AND they’d be represented throughout the process.

This may be the biggest factor in this equation.

If I can help you evaluate your home’s value, advise you on how best to present it to a worldwide audience, and show you the most sophisticated marketing approach available from our prestigious real estate brand, call me today.

What the H-E-Double-L is the MLS Anyway?

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MLS ScreenshotThis acronym bandied about real estate conversations stands for Multiple Listing Service, though that hardly explains what it is or its importance.

In short, the MLS is a database of the property for sale, in contract, or sold within a specific real estate association.  It is simply a list, though hardly simple.

The benefits of a single, comprehensive list are obvious. Any association member can quickly see which properties are available for sale, have gone into contract, or sold and for how much. This data is invaluable and, as ubiquitous as it is today, was not readily available until the cooperating broker agreement was adopted as a standard business model.

For anyone who’s looked for or rented an apartment in San Francisco, the early days of real estate will sound familiar.

Long before regional real estate associations formed as business networking groups, property transactions were hyper-local. If you wanted to buy a house in The Mission District, for example, you’d walk into the two or three real estate offices in the neighborhood to see what each broker had to offer. Conversely, if you wanted to sell your home, the broker down the block or right around the corner was your man. (Sorry ladies, it was a man’s world.)

That broker not only represented the seller, but also the buyer. Easy-peasey, until, of course, you started to think about the set-up.

  • If you were selling a house, the only people who were going to know about it were the ones who walked into that broker’s office.
  • If you were buying a house, you needed to go to every broker in an area to check his listings.

It worked great when there were only one, two, or maybe three brokers in a small neighborhood. Geographic expansion quickly rendered this system ineffective for the consumer AND the broker. However, from the brokers’ perspectives, the information about their listings represented power and the opportunity to make money.

According to the U.S. National Association of Realtors, in as early as the 1880s, brokers started meeting to discuss the properties they represented and what their buyers wanted. They each brought their lists of properties and traded that information among friends, trusting each other to respect their client relationships. (Don’t steal my clients and I won’t steal yours.) These gatherings produced “multiple lists.” It was a fairly closed system and worked brilliantly for decades.

A nationally adopted code of ethics and the cooperating broker agreement enabled this closed circuit to open beyond the trusted circle of friends and associates. The former said if you break the group’s rules, you’ll be kicked out and deprived access to the lists. The latter said that by virtue of being in the group, you will pay a fellow member-broker a portion of the commission you earn when your listing sells, if that broker-member’s client purchases your seller client’s property.

Once established, the sharing of lists no longer relied upon knowing (and trusting) another broker; it relied on steep consequences for bad behavior.

The advent of computerization in the 1960’s and 1970’s made the gathering and distribution of lists easier, and regional real estate member associations grew. Ultimately, the Internet put the power of these lists into the hands of the consumer.

To be clear, the data in the MLS is the exclusive property of the broker who has the listing and the regional real estate member group. Locally, our member group is the San Francisco Association of Realtors.

When the broker member enters information into the system, she has the opportunity to disseminate a portion of the data to non-association member companies. This is called Internet Data Exchange or IDX.

IDX enables others to aggregate the data and present it in various formats. Two good examples of companies doing this are Trulia and Zillow.

The IDX permission to present listing data from an MLS is predicated on the aggregator identifying the listing broker and agent. In other words, Trulia, Zillow, and everyone else presenting the data must make clear who has the listing. This prevents unscrupulous organizations and individuals from claiming to represent a seller in an effort to ensnare a buyer.

Only a portion of the overall data the listing broker can enter into the MLS is made available through IDX. Thus, the listing broker still has the most complete data on a given property.[1] However, for the average consumer looking to buy or sell a home, the amount of information available is empowering and ultimately fosters a more educated relationship with an agent when the time is right.

Since IDX is entirely up to the individual listing broker, not all properties for sale in an area may be found on aggregators’ sites. Most are, because listing agents understand that properties with the widest possible exposure have the greatest chance of being seen by a buyer who is not working with an agent.

As either a seller or a buyer, it is important to understand the source of the information available through various home search sites.

 

[1] Agents trading in residential real estate are the primary users of the MLS. Commercial brokers do not rely upon such a database.

The Fine Print

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Focusing on Fine Print

Photo titled "Focus" by Flickr user Mark Hunter and used with a Creative Commons Attribution Non-Commercial Share-Alike license.

For a moment, I may sound a little like your parents or a cranky college professor you once ignored, so excuse me if it hurts.

Always read the fine print before you sign any document. No wiggle room; no blaming someone else for pressuring you. Read it or run the risk of weeping later.

This is true when you go to the doctor and sign a release of your medical records or when you buy a house. The fine print matters.

Fortunately, reduced size typeface was outlawed on California real estate forms. However, the concept of “fine print” as complicated legalese hasn’t. That means this old adage is critical when you decide to list and sell your property.

I’ll go a step further and say that you should highlight, circle, and make notes in the margins of each form you review, especially when you don’t understand something fully. The process draws you into thinking about what’s being stated; it makes the words real.

Without familiarity or a background in contract law, it’s likely there will be parts of the disclosures and contracts you won’t fully understand. Your real estate agent will do his best to give general explanation, but professional code and law bar him from providing legal advice, unless he is also a practicing attorney. (Few agents who hold a law degree practice real estate and law simultaneously due to liability issues.)

A prudent real estate agent will always recommend you seek both legal and/or tax advice when you express confusion or a lack of understanding of a specific clause on anything requiring your signature. They’ll do this because it is in your best interests and theirs.

Why?

Because the seeds to a lawsuit are sown in surprises. A complete understanding of what you’re signing exponentially reduces the chance of surprises.

I’ll say it again more pointedly: Reading the often long and occasionally tedious documents involved in a home sales transaction is your responsibility; the moment you sign a form, you are accepting accountability for understanding its content.

Sometimes an analogy helps shed light on a subject.

For those who remember David Bowie, you can learn from his costly mistake.

As a young entertainer in the nineteen-sixties and seventies, Bowie assumed a variety of personae as he experimented with his craft. His managing “partner” was Tony DeFries.

The truth, which Bowie only discovered long after the two had worked together for many years, was that he was actually DeFries’ employee, as defined in the contract between them.  While Bowie’s star rose to stratospheric heights, his income didn’t, because he didn’t own fifty-percent of the MainMan production company under which he’d been recording; DeFries owned it ALL. In fact, Bowie didn’t even own the rights to his own songs! (Curiously, the song “Fame” owned exclusively by Bowie and written after their split, was born from his ire against DeFries and MainMan.)

Legal battles over several years ultimately brought clarity and profound wisdom to Bowie, but it cost him dearly.

Hiring a real estate agent means you are entrusting someone to work in your best interest, but that doesn’t absolve you from being involved in what’s happening. The forms you sign help define the relationship between you and your agent (and your agent’s brokerage). This includes what your agent will do as your representative, compensation, and for how long the relationship will last. Read these forms carefully and understand them. While you won’t likely find yourself in David Bowie’s exact shoes, blithely signing without due diligence could be painful.

The Leasing Alternative In A Rent-Controlled Town

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Having just leased two units in a great building on Clay Street for owners whose careers spirited them out of San Francisco, it seems sensible to revisit this alternative to selling. Let’s face it, for anyone who purchased at premium and can afford to wait for tides to rise further or who recognize owning in San Francisco is a great long-term investment, this option can make a lot of sense.

First and foremost, San Francisco is a rent-controlled town.*
Love it or hate it, rent control imposes a sometimes murky set of rules. Property owners would be very wise to follow them as conservatively as possible, because the risks of not doing so can be expensive, time consuming, and dramatically impact your use of the property.

What you might think is common sense may not apply.
Litigation has helped define how the ordinance is applied in the real world. Assuming that because you own a unit you can do what you want with it is a big mistake. When in doubt, check available resources and speak to a qualified attorney familiar with San Francisco’s specific rent control laws. I am always happy to pass along the names of those I’ve heard speak on the subject or who have been referred to me. However, an excellent place to start your education is at the San Francisco Rent Board website. There you can find links to the ordinance, frequently asked questions, commission hearings, and allowable rent increases, among a host of other useful topics.

My absolute strongest advice is to never go it alone in anything you do.
Many of the pratfalls associated with tenant issues can be avoided by understanding your building’s rules around rentals and tenants; using solid lease agreements tailored to San Francisco’s unique set of rules; and vetting your prospective tenants by checking their credit, employment, and rental histories. These all take time but are critical to your success as a landlord.

What does your Home Owners’ Association (HOA) say about rentals?
Many HOAs limit the total number of rentals in a building and sometimes maintain a waiting list for those owners next in line to lease a unit. Others may specify a minimum length of a lease, say six months or a year, so the unit doesn’t become used as a vacation rental.

Good rental forms are produced by professional organizations.
Perhaps because we have complex rules that govern our rental housing stock, a few independent organizations have produced forms well suited to our needs. The San Francisco Apartment Association (SFAA) and the Small Property Owners of San Francisco (SPOSF) are two of the more prominent ones. Each has leases that seek to spell out many of the considerations in renting units in San Francisco. Be very careful using a generic lease available at an office supply store; they are almost never written with our rent control laws in mind.

Know something about your prospective tenant.
While renting to someone you find friendly, kind, and considerate feels important, your business objective is to identify a financially qualified tenant with a positive rental history. Credit blemishes, short-lived employment situations, or poor landlord recommendations are best discovered by seeing a credit report and contacting their references. Your “gut reaction” to someone may be correct, but use a systematic fact-finding process to confirm or refute your intuition and document your discoveries.

Also know that fair housing laws apply.
For a compete understanding of these laws, see the Housing and Urban Development website (HUD).

For those who have already rented a unit and are playing catch-up, consider speaking with an attorney for an hour to see if there are issues to address. For example, have you been paying your tenant annually the allocated interest on their security deposit? If not, correcting this proactively may be in your best interest.

Real estate professionals can help you secure a tenant.
Like listing your property for sale, agents are either paid a flat fee or on a commission basis. For rentals, the commission rate is typically charged as a percentage of the gross annual income of the unit. I’m biased, but for the amount of work involved in showing, screening, and ultimately coordinating the documentation involved in renting a unit, a good agent is worth every penny.
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* Not all units in San Francisco are rent controlled. However, the State of California has laws concerning a tenant’s rights. For guidance on understanding if your particular unit falls under rent control, visit the Rent Board’s website, and to get an understanding of California’s rules, visit the CA Consumer’s website. They have a download-able book entitled California Tenants – A Guide to Residential Tenants and Landlords Rights and Responsibilities.

Just Let ‘em Make An Offer!

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Garage Sale in Monroe

Photo Credit: "Garage Sale in Monroe" by John Beagle

I’ve never been to a garage sale and seen a for sale sign for a house propped-up among hairless Barbie’s and old toaster ovens on a card table close to the curb. And yet, many a sorry homeowner prices his or her property with a garage sale mentality of “let ‘em make an offer if they think it’s priced too high.”

The problem with that attitude is that buyers don’t make serious offers when a property isn’t priced seriously. They either walk away or find an agent who will write a lowball offer to “soften you up.”

How do you think it feels to be softened-up?

That’s right. Lousy!

Even when you’re expecting that punch, it hurts. Instinct tells you to send it right back to them close to your asking, just to show them. What’s the point? It’s a waste of time and gets no one closer to a real deal.

Just because you need to get $900,000 for your house so you can pay off the mortgage, all expenses, and afford a down payment on a new place, doesn’t mean your property is worth that much money. That’s called cost-based pricing and it doesn’t work in real estate.

The only legitimate way to price your property is to objectively evaluate its relationship to comparable properties that have recently sold (closed escrow) and those on the market. That’s how your potential buyer and his or her professional real estate agent are going to decide if your home is priced right. From there, they will make an offer. If there is competition for your home, then you can hope to see multiple offers, even in this market, with some exceeding your asking price.

This is no guarantee that you won’t still get a low ball offer from a cheap buyer, but if presented and marketed properly, they won’t be the only buyers expressing interest in your home.

Let me give you an example.

Recently, a death within my extended family put me in the position of being the trustee of an estate that included a single-family home. I prepared the home for sale by refinishing the hardwood floors, painting the interior, landscaping the grounds, and staging it with contemporary furniture, among other things.

To price it, I enlisted the help of a colleague (for some objectivity). Together, we reviewed the properties sold within the last six months and visited those homes on the market, including the house next door. (On again, off again for months.)

Preparation, careful market evaluation, excellent marketing, and proper pricing paid off with multiple offers.

Many sellers mistakenly believe they just need one buyer. They hope and pray someone will walk through their doors, fall in love with their home, and pay whatever is necessary to get it.

Those days are over. A new reality has taken its place.

Today, serious buyers study the market closely over time and recognize a solid value in relationship to what’s recently sold and what’s available. They also expect to be impressed by presentation. If you want to sell your home, understand you’ve got to put make it look great, drop the garage sale mindset, and price your property right.

SF SELLER'S EDGEJason Allen-Rouman is a fifth-generation San Franciscan and a real estate professional with Sotheby’s International Realty.

The Magical and Mysterious Escrow

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Everyone’s heard of escrow, but how many really know what it is?Mysterious Escrow

In short, it is both the process and the period between ratifying a purchase contract and the recordation of the transfer of ownership.  A party neutral to the deal handles the funds and may also work to transfer the title. Or separate companies manage the funds and the ownership transfer.

The rules governing escrow procedures are established by the purchase contract, prevailing laws, the lender(s) involved, and, if a TIC, condo, or co-op, potentially documents associated with the specific entity. Compliance with each of these components is necessary for escrow to close and the property to transfer from seller to buyer.

Escrow has a natural order. If everyone acts as agreed, the property’s title is clear, and the lender(s) can meet their deadlines, the process is smooth. However, this requires a great many players to work closely and without falter.

Some common reasons for an escrow to come apart are:

  • A buyer is unable to secure a loan according to the terms established in the purchase agreement.
  • The property’s title is “clouded” by an unclear chain of ownership or encumbered by liens.
  • Deadlines aren’t or can’t be met and the parties cannot agree on extensions.
  • The buyer and seller fail to agree on matters that arise after the purchase agreement is executed.

This last point is best explained by an example.

Say the purchase agreement includes the buyer’s right to perform a wood destroying pest inspection, sometimes called a termite inspection. If it reveals necessary work, the buyer has the option to proceed with the transaction or walk-away, thereby ending the escrow without penalty. In a down (or “buyers’) market, this is an opportunity for the buyer to seek a concession from the seller. If the two parties cannot agree who should pay for the repairs or arrive at some other sort of agreement, such as a credit to the buyer, then this roadblock would force the escrow to end without the successful transfer of property.

Sellers who have prepared disclosures in advance of listing their property, a practice I highly recommend, and who have their mortgage payoff information handy, are well positioned and have less to do during escrow as compared to the typical buyer.

If any inspection contingencies are included in the purchase contract, then sellers must make access to the property reasonable. As an aside, it’s usually best to let your agent manage the inspections and, as the seller, do not attend any of these appointment. Professionals do not need a chaperone anymore than your 21 year-old daughter does.

Comparatively, buyers have several tasks during escrow. These include:

  • reading and approving disclosures
  • scheduling and attending inspections
  • reviewing and approving inspection reports
  • applying for a loan
  • and transferring down payment funds

Assuming nothing derails the transaction, both the seller and buyer will meet with the escrow officer separately towards the end of the escrow period to sign all necessary documents. All parties will need to have photo identification, as some signatures are notarized.

Once signatures are done, the remaining steps are for the buyer and their lender to transfer funds into the escrow account*; the escrow officer to pay all approved debts, such as the seller’s loan, broker commissions, escrow charges, and title fees; and for the escrow company to record the appropriate documents with the local county Recorder’s Office. This final step, which occurs virtually simultaneous to the exchange of money, constitutes the close of escrow. The property at that point is the buyer’s, and the seller’s agent may then pass-off keys.

The California Department of Real Estate has produced a useful pamphlet on the subject of escrows. Included in it are consumer resources for both sellers and buyers. To download your free copy, complete the following information and hit send for a link by email.

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*If the property is a short sale without bank approval, the seller will need to also deposit funds into the escrow trust account so his or her loan may be paid in full.

 

You Won’t Find It At Marshalls

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I recently wrote this post and sent it to those on my monthly mailing list. It speaks to buyers, but also has a lesson for sellers.

People looking to buy a home today want to feel like they are getting a deal. Every one of them is picky. If your home has flaws, fix them, or the price had better reflect the condition. Give your agent and a buyer’s agent something to sell, not a “take it or leave it” proposition. Otherwise, your home will look and feel like it is in the bargain bin, and that’s not the same as being a good value.

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You Won’t Find It At Marshalls Marshalls Logo

I’ve said it before, and I’ll say it again: buying real estate is not a retail experience.

Twenty-first century retail is all about customer satisfaction delivered to you by the vendor, preferably on a silver platter.

If the strap on that new handbag snaps a week after you get it home, then you want (and get!) a refund.

Soup served cold and with attitude at a cheeky café down the street? You send it back and drop a snarky review on Yelp for extra satisfaction.

Change your mind about a house you just bought? Sorry. There is no
1-800-BUYERS’-REMORSE to call where you get a refund.

Real estate agents may dress up houses to look beautiful, take spectacular pictures, and advertise that multimillion-dollar view in a fancy magazine, but let’s be absolutely clear – once you sign on the last dotted line, you own it.

Period. Full stop.

This is the first and most stark difference between real estate and retail. You buy it; you own it. This is worth remembering.

For the second biggest difference, I need to tell you a story about a (now) former client.

She’d been looking to buy a home in San Francisco on-and-off for the last two and a half years.  She had her price ceiling and, yet, she could only find homes she liked above it. Adamantly, she’d insist that if any of them just cost less, she’d buy one.

Her favorite homes were great. So much so that based on the condition, location, and level of interest, I consistently counseled her that an offer under the asking price would not secure a deal. In the end, these super places garnered multiple offers and went into contract over asking.

Normally, I’d chalk her behavior up to being an uncommitted buyer unwilling to pay market value for a home. Happens all the time and comes with the territory.

But that seemed too simple.

In San Francisco, there is always a pool of buyers for whom comparable market pricing doesn’t matter. They buy because they like something and how much the house next door fetched two months ago isn’t their focus.

I’ll add that these days, few, if any, of these people are stupid. They aren’t speculators either. They don’t pay more on a whim; they do it because other buyers are nipping at their heels and they want the property.

With or without these players, most homes get priced (and ultimately sell) in relationship to recently sold similar properties. Further, if advertised and shown openly, the free-market sales price is established naturally.  It may be at, above, or below the original asking price. However, by definition, what a home finally sells for under these conditions is the fair market value.

And this brings me to my a-ha moment.

My now former client wanted the “ROSS Dress For Less” equivalent of her ideal home. Of course, the problem is you don’t find a home in a department store, and there is no “the same thing only cheaper” for homes in San Francisco.

Despite this, she scoured the Internet, investigated foreclosures, asked about short sales, and viewed homes at or above her price point for ages hoping to secretly find the golden nugget everyone else stepped over and then submit a “discounted” offer. To her, the asking price was “retail;” paying less equaled a good deal regardless of recent sales data.

This isn’t crazy. We’ve all been conditioned to believe that there’s a bargain out there somewhere if only we look long enough and hard enough. Hunting through one more rack or bin and we’ll have the perfect size, shape, or color. Black Friday, After Christmas, Back-to-School sales all are just around the corner. Groupon. DailyDeal. LivingSocial. Opportunities for discounts are EVERYWHERE.

Unfortunately, what she failed to recognize is that if she is the only person willing to pay the “discounted” price, then, by definition, she would be paying the fair market (retail) price.

The irony is that in the broader context, virtually all real estate is discounted. Locally, there are cases where homes are 10%, 30% and up to 50% off the all-time high. But, again, because houses, condos, and TICs are priced and sold in relationship to markers in an ever-changing sea of value indicators, many buyers, like my former client, focus strictly on the asking price, not on the value context.

Those offering and paying more than asking price are seeing their own bigger picture.

That personal big picture includes the historic dip in prices, but also the value of finding a great home. It says they know their time and happiness is worth the one- to ten-percent premium they need to pay right now to get the home they want.

Yes, they have the resources to afford the bump, but they also recognize the second biggest difference between real estate and retail: you won’t find the home you love in the bargain bin.

Jason Allen-Rouman is a fifth-generation San Franciscan and a real estate professional with Sotheby’s International Realty.

Happy Crappy Neighbor

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A State Of DisrepairYou’ve got a lot of blood, sweat, tears, and MONEY invested in your home. You care about it and how it looks.

And then there are your neighbors.

You know the ones. They live in the house with knee-high weeds for a front lawn and paint peeling like a bad sunburn after a week in Maui. It’s the “haunted house” your seven-year old won’t go near for fear of Voldemort slipping out, snatching them, and dragging them to some nether world.

The bottom line: they’re the house that’s draggin’ down your property value.

But what can you do?

For all you know, they like their house the way it is. Or maybe they don’t have the money to do anything about it and are too proud to admit it. Either way, your options are limited.

If you’re part of a Homeowner Association, your Covenants, Codes, and Restrictions may offer a path to address the offending homeowners. Serious problems may even be matters for the local municipality. Either route takes time, so if you are looking ahead toward a day when you may want to sell your home, get started early.

Remember, too, that older, financially needy homeowners may qualify for assistance from organizations like Rebuilding Together (formerly Christmas In April). Without the benefit of family or trusted friends, they may be unaware of this help or wary of the costs.

Alternately, if you know your neighbor is facing dire circumstances, like a foreclosure, you may be in a waiting game. In most parts of San Francisco, where the surrounding properties are in reasonably good shape, banks move quickly once they take possession; their goal is to liquidate the asset. Bargain buyers love “fixers” and will likely swoop-in for a quick purchase.

If the property does change hands, consider introducing yourself to the new owners and get a read on their plans. Think about working into the conversation how your friends on the block are eager to see them paint, work in the yard, move the old junker from the driveway, etc.

If the new owners are looking to do construction that will improve the overall value of the neighborhood, ask if you can help get neighborhood support. Recognize that their interests are your interests and be neighborly in the quaintest sense of the word.

With some effort, you may just be able to drop the “crappy” from that happy neighbor.

SF SELLER'S EDGEJason Allen-Rouman is a fifth-generation San Franciscan and a real estate professional with Sotheby’s International Realty.

It’s All About Value

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Houses, condos, co-ops and even tenancies-in-common are selling every month in San Francisco. In fact, name any market in the country and the same thing is happening.  It’s occurring where markets are hot and where they’re not, because it’s all about value.

Buyers everywhere recognize value and are paying good money for it.  They’re doing it right now, even as you read this post.

It has nothing to do with fire sales and bargain prices, though the cost of buying a home in July of 2011 is historically low.  Instead, people are seeing value in what they want and are doing what consumers do: consume!

The lesson in this observation for the home seller eager to unload his property lies in understanding the marketplace value proposition.

Since free-markets long ago established that consumers set sales prices, not sellers, it’s always a matter of positioning your product, in this case your home, with the greatest amount of value for the widest possible audience to recognize.  Remember, you choose what price to ASK, but the buyer gets to choose how much to SPEND.

But wait a minute. We know our house is great; heck, we bought it, didn’t we?

Therefore, it stands to reason that we should be able to set a price for it, wait for the right buyer to come along, and happily cash our check once they gladly pay us.

That works great if, one, there really is that magical “right buyer” out there and, two, you have the patience of Job to wait for him or her to find you.  In a way, it’s like going lake fishing and trying to catch a specific fish.  You can cast your line, but you better hope you have just the right bait for just that right fish.

There’s a better way. Identify what’s great about your house and amplify it for lots of fish to find appetizing.

That means understanding what features and benefits homebuyers want and then playing to them.

It means being in the largest lake possible so as many fish can swim past your line.

And it means removing as many obstacles as possible to make buying your home the easiest and smartest choice available to them.

Doing all of that and more creates value.  It makes your home more compelling than any competition in its class and brings you a buyer willing, if not eager, to pay you the most.

SF SELLER'S EDGE