The most common legal arrangement in the business of buying and selling real estate is for a listing agent from one company to represent the seller and a buyer’s agent from another company to represent the buyer.  The advantage to this scenario is that each party their own representative acting in their best interests.

Dual agency, when a Realtor represents the buyer and seller, creates relationships with clients and customers that aren’t that clear-cut.  A Realtor who chooses to become a dual agent can no longer advocate on behalf of either party because each client has opposite goals.  She is also unable to disclose some types of information from each party, like how much the buyer is prepared to pay and how low the seller is willing to go.  And she is also not allowed to offer specific negotiation strategies to either party.

A different kind of dual agency is created when two agents from the same company represent the two parties. This happens with a fair degree of regularity at Paragon because we have so many productive sales people. Some buyers and sellers get confused when Paragon represents both sides. They worry that our company will place its own interests above theirs.  It helps them to understand that as independent contractors we individually represent only the interests of our client — and that their is no personal economic incentive for us to do a deal “in-house.’

Sometimes we list a property for sale and have a buyer ask us to represent them in the transaction. Their hope is that by having us represent both parties we will be able to either reduce the selling price or a cut our commissions. My practice has always been to reject requests for dual agency. I’m not comfortable representing both parties because it limits my ability to advocate for either side.  And even the appearance of not acting in my seller’s best interests is not worth the extra money to jeopardize my relationship with them.  This tactic is also unfair to other agents with buyers interested in the property who won’t have the advantage of a level playing field when competing with other offers.

If I do meet a buyer who wants to make an offer on my listing and they need representation, I refer them to another agent in my office.  If there are multiple offers on the home, I ask that they are all submitted at the same time so I can be sure not to give my associate an unfair advantage.  Again, this is to assure all parties involved that no one is getting inside knowledge on what price and terms to offer.

The best agents build their reputations one deal at a time. While I always guarantee my clients the best representation possible, I’ve also always make sure to treat all parties fairly on every sale I handle.

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This is a synopsis from the NY Times– two realistic views of the market, both quite valid:
 

A few years ago, when multiple bidders would show up at a real estate open house, the truly desperate resorted to writing love letters to the sellers, dripping with compliments for the property and ended with a plea for mercy (and a signed contract).

Today’s real estate market calls for a different kind of letter, less a fuzzy valentine and more like a cold splash of water. . .

Dear Seller:

I’m writing to let you know that I would like to make a bid on your property. I love the area and am committed to buying a house nearby. And your home fits my needs.

But given that my offer is well below your asking price, I also feel I owe you an explanation.

First, consider the big picture. Nationwide, home prices in the first quarter of 2008 fell 14.1 percent compared with the same period a year earlier, according to the Standard & Poor’s/Case-Shiller U.S. National Home Price Index.

That’s the biggest decline in the 20-year history of the data. And just in case you’re wondering, during the housing downturn of the early 1990s, the decline was never worse than 2.8 percent.

Not only that, earlier this month, the National Association of Realtors pointed to the huge number of existing homes on the market. As of the end of April, the total number was 4.55 million. At the rate people are buying right now, that represents an 11.2-month supply.

So buyers have options right now. A lot of them. I’m no different. Your home is great, but it isn’t unique. Few homes are. I know this may be hard to hear, since you’ve spent years creating memories here. But you may be waiting a long time if you hope to find a buyer with the same emotional connection that you have.

My mindset is hardly unique. We’ve all been reading the headlines. The accompanying articles appear prominently in major newspapers and sit on the Web pages where people check their e-mail every day. Everyone sees them, and the psychological impact is real.

Has your real estate agent laid any of this out for you? Maybe so, and you didn’t want to believe it. But it’s also possible that your agent, afraid of offending you and losing the listing, simply doesn’t want to initiate that sort of discussion. It may be worth sitting down for a candid reassessment.

It will be tempting to view my low bid as an insult. Please don’t make that mistake. Your home is genuinely appealing, and I wouldn’t have written this note unless I was serious about buying it. Getting a firm offer in this market is an accomplishment. So congratulations!

Oh, and one more thing. You presumably need someplace to move. My guess is that you’ll find these same points compelling when it’s your turn to buy. You just might succeed in buying for a better price, too.

I look forward to hearing from you soon.

Yours Truly,

The Realist

Now for the Seller’s response:

Dear Bidder:

Thanks so much for your note. I’m truly glad that you like our home as much as we do. You’re right that my family and I have many great memories of this place, and we hope someday you will, too.

And I just want you to know that I’m not insulted in any way by your offer. The fact is, none of us are very good at buying and selling homes. We don’t do it often, and as much as we know we’re not supposed to let emotions get in the way, it’s hard not to. After all, few people buy or sell anything else as expensive as a home in their lifetimes.

That said, your offer disappointed me. You seem to believe that I’m not aware of how bad things are out there or that I’m in denial. But I do read the headlines, and I priced the house accordingly. I knew I might have to wait awhile to sell it.

I should point out that your data draws on what has already happened in the housing market. Instead, I’d ask you to consider what’s about to happen.

One big reason for the falling prices is that it’s harder to get mortgages. Lenders went from giving money to anyone with a pulse to demanding higher credit scores and larger down payments. All sorts of buyers simply couldn’t make the numbers work anymore.

That may now change. Starting June 1, Fannie Mae and Freddie Mac, which buy mortgages from lenders and help make it possible for them to lend more money, are loosening restrictions on the sorts of loans they’ll buy in many markets. That is supposed to make it easier for people to buy a home with a down payment of 5 percent, or even less. Many more qualified buyers should mean more bids, and I’m willing to wait to see if it turns out that way.

I know you talked about having choices, but presumably we wouldn’t be engaging in this correspondence unless you liked my home best. Given that, I’d ask you to think about something: How often do you find a place that you can actually imagine living in? Sure, there are a lot of other properties out there. But an increasing number are in foreclosure and probably have problems lurking within the walls. So don’t let fear of a falling market keep you out of a home that you truly want.

It’s probably obvious by now that I’m not going to counter with a particular number. This doesn’t mean that I do not want to negotiate. I’d just like you to consider what I’ve said and see if you find it convincing. In the meantime, other shoppers who are interested in my home now have a price to beat. So thanks for helping me out with that.

Just one more thing. Please take another look at whatever mortgage calculator you’re using and see how your monthly payment will change if you brought your price up a bit. It almost certainly is not going to be enough to break you. But it may be enough to get us to a deal.

I look forward to your reply.

Yours,

The Undaunted

The Seller’s best points are scored with asking the buyer to calculate mortgage payments at a slightly higher price. At 6% interest only, each $10,000 increment costs $50/month.

But thanking the Buyer for offering a ‘price to beat’ sounds a little snarky. I’d leave it out if I sent a letter like this.

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An article in this month’s Atlantic Monthly suggests that because we tend to use precise numbers for small amounts and round numbers (lots of zeros) for large ones, sellers can make buyers perceive a price as smaller by replacing zeros with other digits. A study from Cornell University has concluded that precise prices like $391,534 were seen as cheaper than round ones like $390,000 even though the round prices were actually lower.

The authors examined more than 27,000 real estate transactions in South Florida. At its conclusion they found that having three zeros at the end of the list price lowered the final sales price by about .73 percent compared with houses listed at a similar price [without zeros]. Each additional zero lowered it by another .39 percent. While seemingly small, this effect can add up to thousands of dollars. 

In the SF neighborhoods we work in, with median prices averaging $1m or more, the effect can add up to $7,000 – $10,000 and up.

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Remodeling Magazine is once again answering the age-old question about  which kinds of remodeling yield the highest returns.  In its exhaustive “2007 Cost vs Value annual report released at the end of last year, they offered city-by-city research on what 29 different home projects will pay back at resale. 

I did a recap on a Cost vs Value reports in 2005, right after I started writing The Buzz. In many ways, the same kinds of projects are yielding the same kinds of returns.  Here’s how you can get the most ‘bang-for-your-buck’ on San Francisco home remodeling costs (please keep in mind that the magazine has fairly exact specs for each project):

Add a Deck:  a $13,500 investment in a big wooden deck (16X20 feet) with railings and a built-in planter and bench will yield a 130% return. Skip the TREK or composite materials if you have an eye towards resale. It becomes more expensive ($17,000) and only yields a 116% return.

Attic bedroom remodel:  This is an expensive investment ($61,500), but can yield a 121% return. It’s also pretty involved, with a bedroom, a bathroom, and four new dormered windows. The magazine assumes that your house comes with a stairway to your attic (as opposed to that funny ladder in your laundry room or trap door in the hall) . They also assume that your neighbors won’t pitch a fit when you want to alter your roof line with the dormers.

Bathroom remodel:  You get a 117% return on your $20,000 investment in a new porcelain tub with tile surround, new standard white toilet, new vanity top with integral sink, new recessed medicine cabinet with light and a retiled floor and vinyl wallpaper (italics mine– I actually love wallpaper but rarely see it in San Francisco). New base cabinetry is not mentioned, but I bet it’s included in the cost.

Easier projects that yield nice returns are: 

Wood window replacement: replace 10 double hung 3X5-foot windows for $14K and you’ll get 112% percent on your investment.

Cosmetic kitchen remodel: I actually love this one because it can have such a huge impact for so little effort. Reface your cabinetry with raised wood panel doors, add new hardware, new appliances, new sink and faucet, new flooring and new paint or wallpaper and you’ll grab a 113.6% on your $24,000 investment.

If you would like me to send you a complete copy of the San Francisco report in PDF form, please email me and I’ll send one out to you.

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These homes all shared a handful of common characteristics: •They had great floor plans, were in great locations, and showed beautifully. If they were missing any single one of these ingredients, they probably would have remained sitting on the market.•They were all well-marketed with professional staging and photography. With buyers looking online first, these elements can’t be overlooked by a good listing agent who wants to get their Seller the highest price.

•They were all priced right in the “sweet spots” that generate multiple offers. The comps for the Glen Park home probably indicated a selling price that could push up to $900K or above, but listing it just below $800K drew in many more buyers, who subsequently fell in love with the home’s charm and ‘just right’ location.

I’m finding my own buyers are picky and definite about their tastes. While they are ready to step up to the plate and aggressively compete for the property they really want to buy, they will pass on anything that doesn’t meet the criteria listed above.

As one of my esteemed associates put it: “It’s definitely not a buyer’s market in many areas of the city. There are a ton of buyers out there coming into open houses. . . They are strong financially, have good savings, and not a single one in the last several weeks has even made a sound like they think the market shifted, or that they are concerned by all the horror stories the media is spinning. Granted, there are grains of truth in some of the stories, but they are all out of perspective, and the media is seizing on people’s fears. I started selling real estate when loans were 18%, so I find it hard to take all this loan stuff seriously. To me, the reality is that the rates are great, even though they’ve gone up, inventory is fairly low, and there are still plenty of buyers competing. . .”

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Hello My Favorite People!A New Way To Look At Homes For Sale. . .

If you are going to open houses this weekend, here are a four fresh ways for you to look at the homes you visit: 1. Picture yourself coming home—

Architects and designers frequently miss this point. I grew up in a custom-built home that took your breath away when walked through the front door. But the back door, which we used the most, forced us through a dead-ugly utility room before we could get to the rest of the house.

2. Review traffic flow Walk from the front door to the back door, through the various rooms and think about furniture placement. Your trajectory should lead you along the edges of the main rooms and easily move you to the private rooms. If your path forces you through the middle of the living areas, you will feel a sense of discomfort.

Is your price range putting you into a home that’s tight on square footage? Consider bringing multiple uses to hallways and connecting spaces with shelving, or window seats. I also like spotlighting hallway walls for art.

3. How does it look and feel to really live there Consider your vantage points. What will you see when you sit on the sofa? How does it look when you stand at the sink and turn your head in either direction?

What you see through a home’s windows is also important. While San Francisco homes generally don’t offer the perfect view from every room, a bit of greenery or a pleasant outlook through at least some of the home’s openings can help considerably.

When shopping for condos, I encourage buyers to pay attention to how the unit relates to others in the building. Depth of perspective through the windows and/or outlook that includes some landscaping will be an advantage upon resale.

4. Realistically consider your lifestyleMy last house had dreary outlooks onto the street from the living and dining rooms– but I didn’t care, because when company came over it was usually in the evening when no one could see the streetscape anyway. When I was home during the day, most of my time was spent in my bedroom reading or working in my office—these rooms had the best views of the back yard and Buena Vista Park.

Room proportion is also a consideration. Some of my clients are focused on private spaces and want big bedrooms. Others are big on entertaining and are willing to sacrifice bedroom size for a large living/dining/kitchen area.

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This Sunday (June 17) I will be holding open 988 Fulton, #244, a two-bedroom, two-bath Alamo Square condo that feels great to come home to. Its courtyard setting has a large fountain surrounded by greenery. Detached on three sides, the floor plan offers generously proportioned bedrooms, and nice Eastern views.

The price is right too, at $698,000. This listing started at a higher price a few weeks ago. Since it got dropped below the $700K threshold it’s awash in activity. Offers are due Wednesday.

If you’d like to talk some more about how to look at a home (or get your home ready to show its best), please call or email me. I’m always happy to share ideas and information.

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