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Real estate agents sound off
The Great Recession our economy is experiencing began with the twin crises of the real estate and mortgage industries in 2006.
Between 2000 and 2006, the real estate market was booming due in large part to easy mortgage terms. Countless people bought into the market driving prices up and spurring major new home construction. In late 2006 the market crashed. Borrowers began to default on loans they could not afford. Lenders began to foreclose on the homes and found the homes to be worth less than owed.
The crises affected every part of the US economy causing arguably the worst economic depression in the Unites States since the 1930s.
As part of a special Examiner series on the Great Recession this column is doing a series on how local jobs in the real estate industry are being changed as a consequence of the market crash. This column will focus on real estate agents and the residential real estate market and how the Great Recession affected this part of the industry.
The buying and selling of residential real estate is a big part of the American Dream. Most people dream of owning their own home. Because the process is so much more than just a business transaction, it takes a special kind of person to be a real estate agent.
Real estate agents are the face of our industry. They are our ambassadors to the public and the point person in most real estate transactions. They are active listeners, problem solvers, confidantes. They must be able to find the reality in the dreams of their clients and then help make them possible. However, for agents to be successful, people skills are not enough. In addition to interpersonal skills, they must be savvy business people.
Agents need to know, in detail, about the market where they work. Real estate agents need to know about the market in order to do their jobs. Agents have to price and market properties correctly. They need to know what inventory is available. Because agents are the main point of contact for their clients they also need to know a little about every other aspect of the real estate industry.
Prior to the mortgage and real estate crises of 2006, the buying and selling process was a well oiled machine of many parts that managed to work together within a limited amount of time to get a deal done. Because agents are paid when deals close—commission only business—the better an agent was at managing the process the more money they made.
Mary Laughlin Fenton is the consummate real estate agent with over twelve years' sales experience in residential and commercial properties. She cut her teeth in real estate in Little Rock, Arkansas, where she worked for a local developer and ultimately owned her own brokerage. She was selected by the Office of Thrift Supervision to be an accredited broker for market evaluations. Mary currently works for Sotheby’s—one of the world’s top luxury brokerages—in their Lombard Street office. She is a member of both the California Association of Realtors and the San Francisco Association of Realtors. Mary holds the GRI designation and is an Ecobroker®.
When asked to sum up what the market was like before the Great Recession hit, Mary said, “Prior to 2006, the market was a frenzy at least in the most coveted neighborhoods. Things moved at breakneck speed. In many transactions, Buyers had to be prepared to overbid and have a compelling pitch to spin to the Seller. Sellers were in the driver’s seat if their home was in good condition and in a desired location.” In fact, prior to 2006, every market was doing well, especially in San Francisco.
When deals back then went awry, the real estate agents were what held all the pieces together and made the deal happen. If there was a problem anywhere in a real estate transaction, the agent was the one who scolded the slow party and comforted the client until the transaction was either back on track or no longer viable.
If a deal died the agent picked up the pieces, got their clients back in a good frame of mind, and made something else happen. And agents usually were able to put another deal together because the timeframe for a real estate transaction was relatively quick. Buyers and sellers communicated via their agents when making or accepting offers on a property and there were deadlines to keep. If one party did not reply, the deal was off.
“Since the recession from last fall on, the real estate market had stalled,” Mary states. When asked why she said, “With the collapse of the financial markets, loans at the high end were scarce until about end of first quarter (this impacted the people especially in the $2ML and below market) of this year coupled with the fact that many people had lost a good portion of their savings.” Her point is applicable for the entire residential real estate market.
Time was of the essence when buying and selling real estate prior to 2006 but that has changed. Numerous factors contribute to the market stall but the primary reasons are lenders are making fewer loans since 2006 and consumer confidence is at an all time low.
Other reasons the market has slowed is the fallout from the HVCC legislation (slowing the appraisal process) and the number of distressed properties on the market.
One of the biggest changes to the market since the Great Recession has been the number of foreclosure and short sale properties available. These types of properties have a few effects on the market. They lower the value of all homes in the neighborhood. Homeowners that would normally sell a property in a “fair market” are reconsidering because the number of distressed properties on the market. The real estate process is slowed down considerably because distressed properties have a different set of rules than “fair market” properties.
Many markets are dominated by short sale and foreclosure properties, and even high-end neighborhoods are affected. Mary recently listed a short sale property in the Lake Street neighborhood of San Francisco and said, “Short sales and foreclosures while minimal in the high end market are happening. The economic conditions have created a domino effect and it has hit people who otherwise were financially stable. Length of marketing times have increased (though not so much in say Pacific/Presidio Heights) as buyers now take longer to examine the properties that are out there.” Longer marketing times coupled with the extra time needed when buying or selling a distressed property—banks must accept the offer on distressed properties and this sometimes takes months—are another reason for the market is still slow.
Matt Francis has been selling real estate since 2004. He started his career in Sacramento selling residential real estate. Matt moved to San Francisco in 2006 and currently works with Prudential CA Realty in their Market Street office. Matt is a member of both the California Association of Realtors and the San Francisco Association of Realtors and is a Prudential Top Producer.
“I’ve lost deals a couple of times because the banks were not able to respond to an offer in time.” Matt said. “One of my clients ended up in another property I had and another client decided to keep looking.” Matt, a short sale specialist, knows the ins-and-outs of selling and buying short sale properties.
He points out that while buying a short sale may not be for everyone it may be a good solution for first time homebuyers.“I work with a lot of first time homebuyers,” Matt said, “and for a lot of my clients short sales are the way they can afford to live in neighborhoods that would have been out of their price range.”
Every cloud has a silver lining and neighborhoods dominated by short sale and foreclosed properties are perfect examples; they are the first areas to see signs of a market rebound. “Some of my clients wanted to put an offer in on a distressed property in the Mission that was priced way too low in an effort to get multiple bids. When we put in our bid it was one of 35,” Matt said. The short sale dominated neighborhoods are very busy, show signs of price stabilization and are proof the market is rebounding. The process takes longer than a fair market transaction but for those prepared to jump through a couple of extra hoops buying a distressed property might be a good decision.
Buyers and sellers have huge emotional investment in real estate that goes far beyond simple finances. Agents go into transactions knowing that there will be a point in time where someone will have an emotional reaction. It’s an emotional trial for even the most experienced buyers, sellers, and agents. Agents do their best to make a transaction easy for everyone involved; it’s part of their job and where their people skills get put to the test.
Nancy Lynn Jarvis worked as a realtor in Santa Cruz County for a number of years before beginning a career as a novelist. She used her years of experience in the real estate market to create protagonist Regan McHenry—a realtor who investigates murder mysteries in Santa Cruz County in between showing property. Nancy’s books are smart, funny mysteries, which also give a true to life look at the life of a real estate agent.
Nancy, who holds a degree in behavioral science from San Jose State, highlighted the emotional aspect of the real estate process. She states, “Real estate is an interesting business. The stress level involved in buying or selling a home ranks right after death and divorce. People reveal a lot about themselves during the process.”
People were willing to go through the transaction because they were relatively quick. Buyers and sellers were willing to deal with the difficulties of a real estate transaction because they were tolerable and the rewards were tangible.
The Great Recession has changed the real industry in both obvious and subtle ways. One the most subtle effects of the crises have been the destruction of consumer confidence. No one thing immediately destroyed consumer confidence. Instead, a combination of factors served to erode consumer confidence. The troubles that now occur because of the crash, (financing problems, extremely long transactions) added into a very emotional transaction has killed consumer confidence. The real estate process has become too hard for some buyers and sellers and they are opting out. Of all the impacts the Great Recession has had on the residential real estate market the skewering of consumer confidence is most damaging.
When asked her opinion on the how the current market was affecting the consumer’s confidence levels Nancy told me about a recent conversations with her friends who are still working in the business, “…phone calls with Realtor friends report sales dragging on for months. All report tearful late night calls from clients who are overwhelmed with the number of hoops they have to jump through, and disasters they've endured (like giving notice because they've been promised that escrow is about to close and then having to couch surf or move in with relatives or friends because it doesn't, and they have no place to live.)” These stories are becoming more common every day and they quietly erode consumer confidence with each retelling.
The Great Recession has had a huge effect on the residential real estate market and the agents that make their living buying and selling homes. The market has changed a huge amount--from pricing to the amount of time it takes to complete a transaction-- and agents are having to relearn as they go. It is a tough time for agents because of the slowdown and many are leaving the business. Those that remain are confident and already see signs of increased consumer confidence and a market rebound. Even with signs that the market is beginning to rebound agents new to the industry—rule of thumb for new agents is to be prepared not to sell anything in the first year—should expect the next couple of years to be a struggle.
Mary Fenton already sees signs the market is rebounding. “The lower end of the market is rebounding and many foreclosed or short sale properties are being snatched up as the value buyers jump in to the market. Rebounds start at the bottom and work their way up and I think the high-end market is showing signs of rebounding too.”
The short sale markets are already rebounding and Matt Francis says the reasons are, “cheap money, and an amazing inventory.” Consumer confidence is returning as more buyers successfully complete transactions.
The US economy will not begin to recover until the residential real estate market rebounds. There is only so much agents can do to speed the recovery along. Despite agent’s confidence, knowledge, and experience they can only do their job if they have clients. The government must revise the incentives available to homeowners and potential homeowners to help speed the process of recovery.
For those interested in more information about the residential real estate process please contact a licensed real estate agent. They have the specialized knowledge necessary to make buying or selling a home a success.
To find out more about Mary Fenton, find out about her listings, or to have her represent you as a client please contact her. Mary Laughlin Fenton, Sotheby’s International Realty 415-901-1721 or 415-205-5218. mary.fenton@sothebyshomes.com. You can visit Mary's homepage by following this link.
You can visit Mary's Sotheby's International Reaty page by following this link.
To find out more about Matt Francis, view his listings, or to have him represent you as a client please contact him. Matt Francis, Prudential CA Realty 415-728-1461 matt@matt-francis.com You can visit Matt's web page by following this link
To find out more about Nancy Lynn Jarvis and Regan McHenry check out www.goodreadmysteries.com
Want to know what points are? Want to know about 1031 exchanges? Want to know if you have to pay a real estate agents commission when you buy or sell? Want to know how mortgage brokers can offer a “no points no fee loan”? Want to know why you need title insurance? I love answering your questions about loans, real estate, and any other question you may have about the industry.
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