What I’m wondering is at what point do commissions get so lucrative that it can severely influence an agent’s actions in representing their buyer?  Since discussing “usual” or “typical” commissions in a public forum can lead to antitrust issues, I won’t discuss numbers but I will say that 5% is above any buyer cooperative commission (buy-side only) that I’ve ever received.

For as long as I’ve been in the business (on my 8th year now!) I’ve heard grumblings of suspicion that some agents working with buyers put a bias towards listings that pay them higher commissions.  In many ways it makes sense – most agents are paid on commission only so selling a higher-priced listing or one with a higher payout does directly affect what they earn.  While it may make sense, steering a client based off of compensation reasons is unethical and violates Agency laws in Minnesota (and likely most other states too).  Needless to say, the influence is there and I have no doubt that some agents practice this, though I truly believe that most agents are true to their clients and don’t let a fatter commission check affect their representation of their client.

What concerns me here is that at some point the commission dollars get to be big enough that it becomes a much bigger enticement and therefore the chances of agent influence become higher.  Even if there is no true influence, the mere appearance of a conflict of interest becomes apparent.

On the flip side, this is a great marketing tool by DR Horton – they attract lots of interested agents to see if DR Horton has a house that fits their buyer’s needs since it would be a big fat payout for the agent.  DR Horton only has to pay that commission on closed sales that meet their rules, so a penney isn’t spent unless there is a result.  Also, since this is only for inventory/spec homes, what they’re doing is putting them on a kind of clearance sales so that they don’t have to keep paying the carrying costs for a vacant completed home.  Smart.

There are two sides to this – I’m curious on what anyone else may think about this.  Please comment!

So many condos built from 2005-2008 in the last boom were purchased either at the top of the price curve and/or were bought with challenged loans or borrowers.  This has meant some buildings having 50% (or maybe more) of their units go back to the bank.  When that happens you have underfunded associations with expenses well above income, small or non-existent reserves and prices spiraling down.

In single family homes, if there are foreclosures around yours you will see some effect on your value but often it can be partially mitigated by your property’s unique characteristics and condition.  Additionally, an appraiser can also search the rest of the neighborhood for comparables to yours. 

When you are in a condo building, most of your comparables are the others in your building.  When you have only a few floor plans in a building and units that are only a few years old, it is very hard to argue that there is a huge difference between your “traditional seller” owned home and a bank owned REO.  With each additional sale prices fall further and more and more owners become upside down on their mortgages, which may lead some to simply walk away from their mortgage and lead to even more foreclosures.

Often these buildings become almost impossible to finance.  For many of these buildings, cash is the only way to buy them.  With FHA eliminating spot approvals for condos and further tightening lending guidelines, more buildings are about to become cash-only financing.  If you look at the financial landscape of buyers, most are taking out a loan to purchase.  Without a financing option, the pool of potential buyers shrinks even more and we see prices further decline and investors swooping in to pick these units up on the cheap.

I have seen quite a few condos that could be financed with payments well below equivalent rents – meaning these units are DEALS.  Unfortunately even though they’re good deals now (some down 40% – 60% from their peak) if they can’t be financed they aren’t an option for the majority of buyers.

Once these buildings have gone through foreclosure and are owner-occupied again, budgets and the overall health of the association will likely improve dramatically.  But until we can secure financing for owner-occupant buyers, what are we to do?

Just-before-print update:  Fannie Mae Relaxes Condo Funding Rules in Florida

http://www.cnbc.com/id/32569620

It is nice to see a little renewed interest in new construction lately… I have seen several developments with 10+ houses under construction at once… something that isn’t very notable compared to 2002-2006 but quite interesting compared last year.  This surge in activity is very spotty though and is found mostly where builders or developers lowered their prices to get the completed home down to a competitive level.

Most people have heard the word radon before, but many probably do not understand what it is.  As found in the EPA’s A Citizen’s Guide to Radon (pdf version here):

Radon is a cancer-causing, radioactive gas. You can’t see radon. And you can’t smell it or taste it. But it may be a problem in your home.

Radon is estimated to cause many thousands of deaths each year. That’s because when you breathe air containing radon, you can get lung cancer. In fact, the Surgeon General has warned that radon is the second leading cause of lung cancer in the United States today. Only smoking causes more lung cancer deaths. If you smoke and your home has high radon levels, your risk of lung cancer is especially high.

The Minnesota Department of Health also has some great information on Radon.

Radon on Minnesota:

Image courtesy EPA

A few years ago I was working with a buyer who during the inspection process also requested a radon test because he was planning to put an office in the basement and consequently would be spending a lot of time there.  When we received the results back from the test we found out that the levels were significantly above the EPA action level of 4.0.

At first I thought: damn, this could be really expensive to mitigate.  After speaking to my colleagues and to a couple of mitigation contractors, we found out that the process is relatively easy and not very expensive at all.

The process typically involves digging a hole in the foundation about the size of a 5 gallon pail and then installing solid PVC piping from the hole up through the roof line, with something similar in size to a bath fan installed in the piping in the attic.  This fan exhausts the radon gas up and out the roof where it dissipates quickly.  In houses that have a drain tile system installed the installation can typically get the radon levels below 1.0 because of the efficiency of the drain tile at getting a broad suction around the foundation.

Once the system is installed the contractor will run a second test to confirm that the radon levels have been brought down within safe limits.  If the level is still elevated, a larger fan typically resolves the problem.

Depending on the contractor chosen and the difficulty of the work to be done, most projects are in the $1000 – $1800 range and can be completed in a day!  Since that time I’ve had most of my buyers do tests during inspection and I’ve found that about 1 in every 3 of my clients find high levels of Radon.  In fact, the 2005 built house I bought in Champlin last fall had a level of 4.0 and a 2005 built house I just sold in Minnetonka had a level of 19!  Homes built today do have more systems in place to prevent Radon but a test is important to verify that the systems are working.

Recently I introduced a buyer to the Crescent Ponds development in Blaine, Minnesota.  Murphy McKee, Centex’s representative, was great to talk with from Day 1. At first we found the prices just a little too high, but when a sales event hit, my buyers were comfortable enough to step up to the plate.  My buyers are buying their first home, so going “all in” on new construction as your first home purchasing experience can be a little overwhelming… it is even for my buyers who have owned houses before!  Murphy was extremely knowledgeable and reassuring, but just as important was how great he was interacting with both my clients and myself.  It is so much easier to work through all of the decisions that need to be made when you’re at ease with the person helping you do so.

Really the entire team at Centex was great… the sales reps at other developments we met when we were looking at floor plans, the staff at the design studio, the construction manager, and the mortgage rep at CTX Mortgage.  The experience with the mortgage rep started off a little uncomfortable but once I alerted Murphy to the situation, he and the rep discussed the issues and from that point on the LO was excellent.  I would have no hesitation to work with him again as well if the situation presented itself.

What really went above and beyond my expectations is when Centex did a price reduction on the model my client was building… right before my clients completed their final selections.  I fully expected Centex to say: “sorry, you’re already under contract” but instead Murphy was able to tell my clients the good news: they would be paying the lower price!  They immediately went and spent most of that money on additional upgrades to the house, which was great because now the house they are building does not have anything in it that they felt they had to “settle for” because of budget constraints.

While it is highly unlikely I’ll have another client for that development, I certainly will keep this experience in mind for my future buyers and think positively on the Centex experience for some time to come.  My clients are looking forward to moving in to their new home in March!

Centex also offers new homes in Ramsey, Champlin, Brooklyn Park, Hugo, Woodbury, Rosemount, Apple Valley, Farmington, Shakopee, Prior Lake, Chaska, and Carver, MN.

I also saw another builder marking their inventory down in the MLS a similar amount too.

This suggests to me that builders understand that we’re nearing the end of the strong sales season and that they need to price reduce now to sell these homes soon or they will be left holding them all winter!

It’s a great application and shows great potential… I hope to have a chance to try it on a house sometime…

• Builders are giving good discounts off of the “base model” of their homes, but buyers will upgrade many of the items, so the price climbs.
• On a $400,000 house, it is not unusual to end up with $40,000 – $60,000 in upgrades.  This is often well above the buyer’s expectations.
• Most builders hold firm on the price of upgrades because many of these items constitute healthy profit margins for the builder.
• In this market, almost everything is negotiable, but you have to know what to ask and when.  Most new construction buyers are not familiar enough with the process to know these things.
• Builders will sometimes clear their “spec homes,” houses which were built without a signed Purchase Agreement, at pricing substantially lower than the custom-built version of that same model.
• The builder’s representative will be very helpful and friendly, but is there representing the builder and is doing everything they can to get you to buy from them.
• When a builder is finishing up a development, they will often substantially drop their prices on the last few homes in an effort to get out quickly.  Just this weekend I saw a $400,000 new construction two story home in Albertville for sale for under $300,000.  There was another one that was $350,000 but is now reduced to $275,000.

Most builders offer a buyer’s agent a commission by default (anything in the MLS is required to have a cooperative commission) and it most often does not change the price if you bring in your own agent or not so it is in your best interests to interview several agents and choose to work with one before you choose to purchase a new construction home.