January 19th, 2016

Real Estate and the Sharing Economy


By: Victor Normand
Published: January 2016

Since the Industrial Revolution in the 19th century, all businesses and industries have been under siege by technology. In England, the Luddites attempted to stop progress by trying to get Parliament to outlaw the use of spinners and power looms in the making of cloth. That did not work and so we have all come to accept that there will always be better ways of doing things, though the pace of innovation seems lately to have us all spinning.

The term “sharing economy” understates the revolution in both technology and social norms that has affected almost the entire economy. We can trace this movement, of course, to the internet which only exists because of programs that allow all our computers to share information, communicating openly and in a common digital language. We have swiftly moved from sharing content on line to sharing our lives on Facebook and now in ever increasing ways, sharing our things, not the least of which are cars and houses.

Real estate has been affected by both the sharing of information and the sharing of physical places. The success of Airbnb has made huge inroads into the traditional lodging business by making it easy and safe for people not in the lodging business to get into the business. With sites in over 8,000 cities worldwide, Airbnb participants are offering everything from igloos to medieval castles. Although widely accepted by consumers, Airbnb lodgings have caused disruptions in some communities, particularly in tourist locations where the income from the rentals has had the effect of causing property values to rise.

The popularity of co-working spaces is another example of the acceptance that having access to space is more important than ownership. At Acton Real Estate, we have a regular periodic need for a large conference room, though not every day. So instead we share that space with other businesses in our building.

Information sharing is another opportunity often used to upend traditional business models. Real estate brokerages have long been in the sights of technology innovators who have made numerous attempts to lower costs, reduce waste and create value by offering consumers an alternative approach to the sale and purchase of real estate through expanded technologies.

Real estate consumers seem to have an endless appetite for information. With this in mind, the innovators set about gathering and organizing information and sharing it as it had never been shared before. They rightly assessed that by and large, real estate agents, not unlike others in sales, regarded information as power. In the old days, consumers were required to subject themselves to identification by logging in to websites, and as well, real estate listings were often short on details. All this was intended to make consumers seek out and deal with those “knowledgeable” real estate agents.

What these innovators failed to realize was that we live in a dynamic economic environment. Most real estate brokerages did realize that this old school model was not going to survive in a sharing economy. And they opened up and did not fight technology as Luddites might have recommended, but rather embraced the free flow of information. An added benefit of this transparency has been a higher level of trust between the real estate professional and the client.

Not every service or commodity is suitable for the sharing economy. A software engineer named Punsri Abeywickrema, who worked for LinkedIn and built platforms for the rental of everything, concluded that the most suitable category for the sharing of things should cost more than $100, but less than $500. This may also help to explain why more consumers use a Resident Expertsm now than they did ten years ago…….

December 16th, 2015

Who’s Going to Buy My House, and Where Am I Going to Live?


By: Victor Normand
Published:December 2015

Your house is going to be purchased by someone between the ages of 25 and 34 (a Millennial) and you are going to move to a condo in Boston to be near others who are also over the age of 55 (the Boomers). So says the Chief Economist for realtor.com®.

The Greater Boston Association of REALTORS® recently held their annual Economic Expectations event at the Federal Reserve building in Boston. The speakers presented their forecast of the housing market in 2016. The main speaker was Jonathan Smoke who is Chief Economist for realtor.com®. He discussed national trends in general and the greater Boston regional market in particular. Boston is one of the strongest housing markets in the country as measured by sales volume and housing appreciation.

Over the next five years, population in the United States will grow by 4%; the fastest growing segment will be the over 55 crowd who will be downsizing which in this part of the country, means moving to the Big City in larger numbers than any other age group. The Millennials in the Boston area, unlike their counterparts in other parts of the country, are managing their college debt because this is where the better, higher paying jobs are.

The Boston region, which includes many Middlesex County communities in our market, continued to benefit from low mortgage interest rates, a strong job market and rising home prices. Although interest rates are expected to rise, probably less than a full percentage point in the coming year, employment numbers will increase and unemployment is likely to remain below the national average.

Demand for housing continues to exceed supply, helping to keep home prices rising although housing production, particularly in the multi-family sector, has begun to increase eventually helping to moderate rising prices. The city of Boston and the near suburbs have seen the greatest price appreciation in 2015 at 15.3%, followed by Middlesex County with a healthy 7.1%.

Even though high home prices make continuing to rent the better economic choice over buying in this area, younger buyers have the income to buy, and in increasing numbers are responding to still favorable interest rates and are just plain tired of their current housing by their own admission. Further, they recognize the demonstrated effect home ownership has on long term savings.

The most significant trigger for Millennial home shoppers is a change in family size. Sixty-nine percent of millennial respondents to a recent survey reported that the actual or expected change in family size including getting married or having a parent move in has made them active home buyers. Historically speaking, not surprising for this age group.

The fundamentals are finally healthy again. The economy is steadily improving, home prices are on the rise, but not unreasonably so, older homeowners are moving on and younger buyers are acting like first time buyers again. The inventory of homes for sale both existing and in the new construction market is getting better and credit access is slowly improving.

Finally, Jonathan Smoke believes there is no US housing market, only local and regional markets and we happen to live in one of the best in the country. So the expectation for the year ahead is that Millennials will be buying and Boomers will be selling, and life goes on.

November 16th, 2015

2015 NAR Survey of Home Buyers and Sellers


By: Victor Normand
Published: November 2015

The National Association of REALTORS® has conducted the Profile of Home Buyers and Sellers since 1981. It’s just- released survey for 2015 contains many interesting changes and trends. While the survey is national in scope, much of the information is helpful to Buyers and Sellers in our market. The report is over 140 pages in length and is the result of responses from over 6,000 individuals. Demographics, housing characteristics and the experiences of consumers in the housing market are covered in the report. Below are some of the major findings.

First Time Home Buyers

The percentage of first time home buyers continues to decline. Down from last year to 32 percent of buyers, this is the second lowest percentage since the 1987 rate of 30 percent. School loan debt was cited as a contributing factor along with the rising cost of housing. First time home buyers tend to be single men and women who are at an economic disadvantage to married couples with two incomes. In addition to school loans, credit card debt and car loans were cited as impediments to accumulating funds for the down payment.

Characteristics of Home Buyers

The typical home buyers are in their mid-forties and married (67 percent); 15 percent are single women and 9 percent are single men. Thirteen percent of home buyers are purchasing multi-generational housing to accommodate aging parents and/or adult children still living at home.

Homes Purchased

No surprise, detached single family homes are preferred by 83 percent of buyers and homes requiring renovation are often avoided. Eighty-four percent of home buyers purchase existing homes; the average age of those homes is about 25 years. The median distance between the home sold and the home purchased was only 14 miles. Overall, buyers expect to stay in their home for 14 years, though the actual time in residence in 2015 was 9 years, down from 10 last year.

Home Sellers and Their Selling Experience

The average age of home sellers was 54 and the most common reasons for selling were: Their home was too small followed by job relocation and lastly, their desire to be closer to family and friends. For recently sold homes, the average sale price was 98 percent of the final listing price. Recently sold homes were on the market for a median of four weeks.

Home Selling and Real Estate Professionals

Most sellers used a real estate professional to sell their homes. Eighty-four percent say they would definitely (67 percent) or probably (17 percent) use their agent for future services. Seventy-two percent contacted only one agent to list their home.

For-Sale-By-Owner (FSBO) Sellers

Only eight percent (down from nine percent last year) of recent home sellers were FSBO sales. This was the lowest share since NAR began these surveys in 1981. FSBO sales typically sold for less than agent assisted sales, though FSBO homes typically sold in less time, usually because the home was sold to a relative or someone the seller knows.

Understanding real estate is a continuing process, just ask a Resident Expertsm.

October 21st, 2015

Mortgage Interest Rate are Going Up…….Really


By: Victor Normand
Published: October 2015

Mortgage interest rates have been at historic lows since the Great Recession in 2008 and hovering around 4% all during the past year. As real estate professionals, we have been advising clients to expect the rate to increase for several years now, but they have not. As recently as last summer, rate increases seemed certain; likely in September, now early next year is the expectation.

The focus of attention is the Federal Reserve and their use of interest rates along with changes in the money supply to steady the US economy. In actuality, the Fed sets a “target” rate on the interest rate banks charge one another for overnight loans needed to adjust their reserve balances. This “target” rate setting strongly influences all other rates including mortgage interest rates.

The highest Fed Funds rate was in 1981 at 15.87% and the lowest is essentially now at .14%. The 30 year fixed mortgage interest rate in September of 1981, the peak, was 18.16%, the lowest rate was 3.35% in November of 2012.

The further effect of the Fed Fund rate at near zero percent has been very low interest rates on bank deposits, money market funds and fixed income investments (bonds). Some economists suggest that the run up in the stock market is the result of investors and fund managers looking for higher returns and finding them only in equities. The result, which seems to be happening presently, is an overvalued stock market in need of a correction.

So, where is the best place to invest? How about residential real estate in general, a home you live in to be more specific. Financial advisors do not recommend that the average investor borrow money to buy stocks or bonds but borrowing money to invest in your home makes sense, though both approaches have the potential of leveraging cash and creating extraordinary returns. Both forms of investment have risk and as we have seen, values can decrease, sometimes significantly. It takes a great deal of investment discipline to hang on to devalued stocks but riding out the bad times in the home you live in, well……….not so much.

A recent phenomenon in the downsizing marketplace has been using most if not all of the proceeds from the sale of the big house to purchase the downsized or retirement home rather than investing any excess cash. The reasoning may be that the best way to preserve capital, which for the older buyers is their estate, is to keep it in real estate where, as an added benefit, they get to enjoy the upgrades in the new home.

As the economy improves, inflation will begin to rise at a faster rate, wages will start heading up and the Fed will definitely tighten the money supply and cause interest rates to rise. The resultant rise in mortgage interest rates will put some downward pressure on home price appreciation but the fundamental of home ownership will remain attractive. Turmoil in the financial markets does affect the economics of housing, but sleepless nights are less common in your own home.

September 16th, 2015

Local, Independent and In the Lead


Acton Real Estate – Original Building

So far this year, through the month of August, Acton Real Estate has held the top market share position in the Town of Acton as measured by sales volume. Of the top ten offices that have done business in Acton during that period, all are affiliated with a national brand, except Acton Real Estate. Many of those franchises have more agents, some with 3 to 5 times as many. All of these franchised offices are technically small business as defined by the Small Business Administration as having less than 500 employees, but only Acton Real Estate is a truly local small business.

Prior to the Industrial Revolution, virtually all goods and services were provided locally. Certain commodities were traded from great distances, but consumers got what they needed for daily living by producing it themselves, or buying items in the nearby village or village marketplace. Interest in returning to that way of life has never waned, renewed in the 1980’s with the modern advent of the Farmers Market. The term “localism” describes a popular movement that favors local production and consumption of goods and by extension, the promotion of local tradition.

It would be naive to suggest that the evolution of small businesses into big businesses has not benefited the economy in many ways. Nor would it be wrong to suggest that there are many industries that could not exist except by being big. There are certainly economies of scale, expanded selections of goods and good old fashioned competition that all accrue to retail big businesses. While big businesses tend to pay higher salaries and offer greater benefits, the jobs they do create are often offset by direct and indirect job losses when small businesses in the community close their doors.

Characteristic of a local small business is its independence. The ability to operate and re-direct business operations in response to local needs on short notice in contrast to operating under policies and guidelines established by a corporate business model, which may be geographically distant from virtually every community it serves, has obvious advantages. Additionally, the corporate or franchise business model is often designed to serve typical consumer preferences, as in “one size fits all.”

And then there is the role that the internet is playing in the way goods and services are procured. Essentially, the internet has created the near perfect marketplace where all sellers are able to offer their goods and services to all buyers looking to purchase those goods and services. This explosion of opportunity and information is experiencing rapid growth and acceptance. Call this the Amazon.com experience where more and more consumers begin and often end their shopping on- line.

The internet is efficient and allows local small businesses a more level playing field when competing with the national brands for customers. Real estate is a good example of this. Sometimes the internet profile of a company will not necessarily focus on its size; rather it presents the consumer with information on its qualifications, experience and character allowing consumers to make better decisions on who they would be dealing with as well as what goods and services they wish to buy.

Research has shown that most buyers and sellers of real estate spend considerable time on- line gathering information. Sometimes real estate purchases are made on line, but that would be the exception. For the most part, consumers use the internet to gather information and then they will contact a Resident Expertsm to guide them along. Capturing market share is an important indicator of consumer satisfaction in the very competitive open market for real estate services. Acton Real Estate is committed to our local, independent business model.

August 19th, 2015

A Move in the Works


By: Victor Normand
Published: August 2015

Acton Real Estate

Acton Real Estate

Acton Real Estate Company is moving to new offices in West Acton Village. The new space will be in the recently built Villageworks complex on Massachusetts Avenue, in an area fast becoming the most active and interesting commercial center in town.

Just as living space needs for individuals and families changes over time, spaces for businesses evolve as well. Sometimes the current space is too large or too small, sometimes the type or arrangement of spaces has changed, a location closer to amenities becomes a consideration, and sometimes we just need a change.

Businesses, like families adapt their needs to whatever space they are in until they have reached the point, for any number of reasons, where something just has to be done and then the wheels of change are set in motion. Once that happens, the urge to move begins to build and all the pros and cons get listed to see which list will be longest and prevail.

For a business like a real estate office, the space has to be functional and efficient, but it must also reflect the way workers and clients expect to do business today. Work environments for customer service businesses are more open and inviting these days, physical barriers between workers and customers have fallen. Those who sell goods and services are no longer the fount of all wisdom they once were. The information age has armed consumers with abundant information, now it is all about forming trusting relationships along with a demonstrably superior knowledge of the product or service.

The new space we are moving to, first of all is new, and that is almost always attractive to staff and customers, not unlike the appeal of new homes over older homes. And it is not just that new is shining and bright; new is able to respond to the latest technologies, current design trends and proven innovative concepts. The new space and new furnishings convey forward thinking, an openness to all that is new and creative.

The decision to move Acton Real Estate was not made easily. The company has operated from 371 Massachusetts Avenue for almost exactly 60 years since it began as a business in 1956. The move to 525 Massachusetts Avenue is barely a mile down the road but the look and feel of the offices as well as its village setting will be a world of difference.

The means to access services now is almost exclusively by automobile; the new location accommodates parked cars nicely, but is in the midst of a walkable environment. The present location is a free standing building; the new office is among other service, professional, retail, food businesses and event spaces. A lively, interesting gathering of busy people makes us all feel social and engaged.

Now that we have made the decision to relocate, and construction has begun on the office fit-up, we are all anxious to be working in the Village and welcoming our friends, neighbors and other clients to the new home of the Resident Expertsm. You can check on the progress with weekly updates on our Facebook page and then come by when we open the doors early this fall.

July 16th, 2015

The Real Estate Commission – How it Really Works


By: Victor Normand
Published: July 2015

Part II

The actual commission rate is determined by the marketplace. The rate which prevails in any given market is continually challenged by so called discount brokerages and various self-help real estate selling services. Under our economic system, only the government or governmental agencies can fix prices and real estate commissions are no exception to this. Real estate companies cannot collude among themselves to set rates, though rates can be set by individual company policies for their services, and consumers are free to accept, reject or negotiate those rates.

Under law in Massachusetts there is no requirement for a consumer to have either a seller or buyer agent under contract. However, in order to list property with a multiple listing service (MLS) a listing agreement must be in place. And although both buyer and seller agents are paid a fee, buyer agents rely on the listing published by the MLS to know their level of compensation. A contract with a buyer agent could specify a fee, but that fee is customarily offset by any fees posted in the listing.

The commission stated in the listing agreement which is paid to the listing broker in full at closing is intended to compensate both the buyer agent and the selling agent. It is usually split evenly, but not necessarily. So there are two licensed professionals representing separate clients paid by the seller. However, in actuality, it is the buyer who is paying the commission as part of the purchase price. Unless the property has an upside down mortgage (the sellers owe more than the property is selling for), only the buyer brings money to a closing.

Nearly all property sales include commission in the sale price. It is akin to offers of “free shipping;” shipping isn’t free at all; it is merely included in the cost of whatever is being shipped. Aggregating recent sales of comparable properties to arrive at a projected sale price of a subject property therefore includes commissions paid. So then, the buyer in most instances has no contractual obligation to pay the buyer agent a commission, but ends up effectively paying not only the buyer agent, but the listing agent as well.

The process and practice is complicated and rife for misinterpretation, but it does serve to protect the consumer by providing for a licensed and insured professional operating under strict real estate law. Furthermore, all real estate agents in Massachusetts must work under the supervision of a licensed real estate broker within a licensed real estate brokerage. As mentioned, the commission stated in a listing agreement pays both the list and the buy side of a real estate transaction. In most situations the commission is divided among four parties; the listing agent and buyer’s agent and their respective brokerages.

The internet has radically changed how businesses operate today. More and more retail business is done on line, automobiles are not sold like they used to be and the travel agency is nearly extinct. But real estate agency is as strong as it has ever been. Almost all real estate buyers search for and most find property on line, yet over 90% of all buyers use a real estate agent to make the deal.

Redfin, Trulia, and Zillow have all tried to use technology to replace the real estate agent with limited success. In the end, housing is not a commodity like a book or an automobile and its economic scale is outsized. The internet has made much more information available to consumers, so much so that what may have seemed like a simple process is revealed for its true complexity. The logarithm that replaces a licensed, well trained, and experienced real estate agent has not been written.

The importance of an organized, stable and active real estate market is fundamental to our economy. The role of government regulation, housing associations and the real estate professionals who operate by those standards should not be underestimated or taken for granted. We have recently seen what happens to the economy when the real estate market is disrupted. Hunter-gatherers may have no need for a Resident Expertsm, but you do.

June 17th, 2015

The Real Estate Commission –Some History


By: Victor Normand
Published: June 2015

Part I

Owning property or having rights to it meant little to our hunter-gatherer ancestors, then, beginning about 30,000 years ago, it did. The shift to an agrarian society for most of mankind established the importance of having ties to the land. As societies became more advanced, farmers looked to higher authorities to safeguard rights to hold and use the land. Family elders, village leaders, kings and queens and various forms of government provided a means to temporarily or permanently create rights to the land itself or at least the right to farm it. It is from this need to make the possession of land more secure that official order, common law and eventually written law emerged.

The rise of capitalism and the industrialization of the economies heightened the need to organize the ownership and transfer of property for the benefit of individuals and corporations. In the 1850’s, the first real estate brokerages were established in Chicago. From that time on into most of the twentieth century, the relationship between real estate brokers and their clients was simple: listing brokers represented sellers and the agents who worked with buyers were “subagents” of the listing broker. Buyers were unrepresented.

Under this system and into the twentieth century, most real estate listings were “open listings,” allowing anyone to bring a buyer to the seller (still common in many international markets). Not surprisingly, brokers did not market properties or cooperate with other brokers, and sellers could deal directly with buyers, bypassing brokers altogether. The real estate industry was not organized and very much open to speculation. Often, complicated transactions ensued and consumer abuse was common. As a result of all this, real estate brokers and agents were not held in high regard.

The solution to this problem, put forth by the National Association of Real Estate Exchanges (NAREE) (the predecessor of the National Association of Realtors) was to professionalize the brokerage trade. The relationship with clients and between agents would be set forth in an industry code of ethics and individual state licensing laws. The goal was to raise the profession to the level of lawyers, accountants, and architects where brokers would have duties like loyalty, financial accountability, and obedience and good faith dealings.

By taking on these legal responsibilities, brokers expected to have an exclusive agency relationship with clients and be paid a commission for their services regardless of who brought a buyer to the deal. The advent of the exclusive listing aimed to find the correct balance between protecting consumers and fairly compensating real estate brokers and agents. The only flaw in this arrangement was the fact that buyers remained unrepresented. (See the blog “Who’s Looking Out for Me,” February 2015)

This brings us to the matter of explaining in greater detail the real estate commission. Now that we have all the players: Sellers and buyers and their respective brokers and agents, real estate associations and state licensing authorities, we can begin to see the interplay of the commission structure.

To Be Continued in Next Months Blog: The Real Estate Commission – How it Really Works

May 20th, 2015

Do You Need a Real Estate Agent?


By: Victor Normand
Published: May 2015

Donald Trump was recently asked why he thought he would make a good President. He answered “because I know all the right people.” And that’s not a bad answer. Engaging a good real estate agent makes YOU smart. While tapping into their knowledge and experience is a very good thing, having access through them to their local office support and to their list of other housing professionals is important and indispensable.

Referral networks are increasingly popular these days. One of the major benefits of social media allows participants to share their experiences with others. Real estate agents have always valued referrals as the most effective way to build their business. Getting started on a real estate adventure is easy going at first, but it rarely stays that way; ask anyone who has just completed a deal. Testimonials are a good way to learn about an agent and often a window into some of the complicated situations that often arise on the way to a closing.

What about deciding against using a real estate agent? In an attempt to “save” that commission expense, whether or not you save money buying or selling a property is not so certain. You can search on line for legal or medical advice and save those professional fees as well, but that might not be cost effective either. It’s all about believing that your agent represents a value proposition.

A buyer more focused on using commission money as part of negotiating a purchase by dealing directly with a seller or seller’s agent may succeed, but their negotiating success may be limited. A buyer agent brings knowledge of the local market and practical experience to every transaction. There is a vast difference between someone who does a real estate deal once every seven to ten years and someone who may have done more than seven to ten deals in the past year.

There might be comfort, if not safety, in believing that “you don’t know what you don’t know.” But, that is no defense in situations involving discrimination, home inspections, lead paint notifications, legally binding agreements and a host of other legal requirements that are a part of every real estate transaction. Whether you are a buyer or seller, full disclosure and knowing your rights can help protect you from financial difficulties, wasting time and preventing extended periods of stress and anxiety.

The Board of Registration of Real Estate Brokers and Salespersons enforces existing licensing laws and regulations on behalf of consumers. Real estate agents are required to maintain active licensees and regularly participate in continuing education. In addition, many real estate agents, including all of the Resident Experts sm at Acton Real Estate are REALTORS®, members of the Massachusetts Association of Realtor and the National Association of Realtors. As members, REALTORS® must abide by a strict code of ethics, which is also subject to continuing education requirements.

So, when you know a Resident Expertsm who is also a REALTOR®, you know the right people.

April 20th, 2015

The Demise of the 30 Year Mortgage


By: Victor Normand
Published: April 2015

The subprime lending crisis is history, but its effects on the residential real estate industry will remain with us for a long time. The most apparent changes have been tighter lending standards and greater transparency with consumer protections for home buyers, but other less visible changes may be happening, changes that could make home buying out of reach for lower and moderate income borrowers looking for an affordable mortgage.

At the time of the crisis in 2008, the federal government through “government sponsored enterprises” (GSE’s) Fannie Mae and Freddie Mac, guaranteed more than three quarters of all outstanding home mortgages in the country. Though federally chartered for the public purpose of providing low interest rate mortgages and affordable housing, the GSE’s are privately owned by their stockholders, stockholders who were interested in profitability. To achieve increased profitability, the GSE’s fought increases in capital requirements and regulation.

When the financial crisis hit in September of 2008, Lehman Brothers filed for bankruptcy and the big banks were threatened with collapse, it would not be long before the GSE’s suffered the same fate. Nearly $200 billion was needed to keep them solvent. The U.S. Treasury provided the funds under the terms of a conservatorship that took control of Freddie and Fannie and set the stage for their eventual demise.

The view of many in the housing and banking industry is that without Freddie and Fannie there will no longer be the 30 year fixed rate mortgage that has fueled the home buying market.   At the end of World War II when only 40% of Americans owned their own homes, the 30 year mortgage envisioned as part of the New Deal in 1938 was new on the scene, today over 60% of Americans own their homes. Without the guarantees provided by the government through the GSEs, it is unlikely that lenders would be willing to take such long term risks, particularly in the current low interest rate environment. Today, many higher income home buyers are opting for 10 and 15 year mortgages, but the 30 year mortgage is critical to many first time and moderate income borrowers.

The structure of the conservatorship seems to dictate its demise, probably by 2018. Legislation in Congress has bi-partisan support and recently the President has indicated his support for a change. The effects of a sudden end to government guaranteed mortgaged backed securities would be an economic disaster. Housing and housing related services accounts for over 17% of the country’s Gross Domestic Product. The progression that begins with buyers who can only afford smaller mortgages and moves to lowered home values and then loss of equity and finally to recession is very familiar to everyone.

The legislation to wind down the GSEs has names like “The Protecting American Taxpayers and Homeowners” and “Housing Finance Reform and Taxpayers Protection Act” both sound like just what the country needs, but the devil is in the details. The National Association of Realtors strongly opposes these bills and other efforts that disrupt the current housing finance status quo, but the damage has been done. Less dependence on the federal government for the health of the housing sector of the economy would be a good thing, getting from here to there needs to be done carefully, very carefully.