What really happened this spring in the real estate market?

inventorySo much has been written about what happened this spring. Most of it is about prices going up, bidding wars and the lack of inventory. Now that the summer is a few months behind us, and most properties that went under agreement by the end of the summer have closed, we can look at what actually happened. I have analyzed the numbers that I think matter most.

Downtown
An analysis of the closed sales of all the more upscale downtown Boston neighborhoods, from Charlestown to South Boston to Jamaica Plain, show that the median price of a residential home, including condominiums, single families and multi-families, rose about 10% in 2013 from the same time in 2012. In 2012 it was up about 6% from 2011. The recent figures are substantial, but not mind-boggling. The mind-boggling numbers are the average “days-on-market” statistics. In 2011, average days-on-market was 97. That figure fell 17% to 76 days in 2012, and then fell another 47% to 40 days in 2013. Surprisingly, the inventory has been fairly consistent. The number of homes sold fell 20% from 2011 to 2012 but then stayed about even for 2013.

Cambridge
Cambridge’s value numbers are more dramatic. Up 6% from 2011 to 2012, and then up another 17% from 2012 to 2013. Days on market fell 28% from 72 in 2011 to 52 in 2012, and then another 35% in 2013 to 34. I would consider this number for days on market in the ‘mind boggling’ category.

Brookline
Brookline’s value numbers are quite different. Values actually fell about 1.5% from 2011 to 2012, and then rose 14% from 2012 to 2013. dns database Days on market fell about 27% from 82 in 2011 to 60 in 2012, and then another 38% to 37 in 2013. Here again, the days on market falls in the “mind boggling’ category.

High End Suburban snapshot (Lexington, Wellesley, Weston, Winchester)
I thought it would be interesting to look at the numbers of these 4 “high-end” suburbs considered together. Here is what I found: prices increased 2% from 2011 to 2012, and then went up 13% in 2013. Days on market stayed flat at 107 from 2011 to 2012, but decreased by 35% to 70 for 2013.

All in all, it was one hell of a spring.

The Commission Conundrum – Should you negotiate it?

real-estate-commissionI charge my clients what I consider a fair and “standard” commission for the Boston area real estate market. I tell my listing clients that my commission is 5%, and that I don’t ask for more and I rarely negotiate less. Under special circumstances I may take a slightly lower commission (multiple transactions) and in no circumstances will I take less than 4.5% as a total commission.

What makes 5% “standard”?

Commissions are NOT standardized according to any governmental or non-governmental agency or body. In addition, no realtor organization makes anything approaching a “suggestion” as to actual commissions, as it is probably prohibited from doing so. Commissions are determined by the market and are technically “freely” negotiated between agents and sellers. Individual agencies can set their own standards but it would be borderline illegal for brokers from different agencies to discuss commissions. Agents are taught that just talking about commissions with agents from other brokerages can be seen as an anti-competitive violation of the Federal anti-monopoly laws. 5% is merely standard in a colloquial sense based on what I see agents charging in the metropolitan Boston area.

The Statistics

There is no way to track the actual commissions that agents charge. However, we can infer what they are charging by looking at what MLS shows agents are offering as a “co-broke” commission to the buyers’ agents. Agents almost universally “co-broke” or “offer to compensate” the buyer’s agent with 50% of the total commission. According to MLS for the past year:

  1. In Brookline, on 93.6% of the residential listings, the listing agent offered a 2.5% commission co-broke 93.6% of the time, offered less, 5.4% of time, and more, 1% of the time.
  2. In Newton the numbers are similar. The listing agent offered a 2.5% commission co-broke 89% of the time, offered less, 8% of time, and more, 3% of the time.
  3. In Boston, which involves thousands of listings, the numbers are somewhat different. On about 75% of the residential listings, the listing agent offered a 2.5% commission co-broke, offered less 22% of the time, and more, about 3% of the time.

While there are occasions when the listing agent will not compensate the buyer’s agent with 50% of the commission, based on my experience, it happens so rarely that the message here is clear: 5% is what most agents charge most of the time.

If you are a seller, you can probably negotiate for a lower commission from your agent. The statistics indicate that it happens plenty often.  However, I have some questions for you to ponder before you negotiate a lower commission. With the overwhelming majority of listings offering the buyer’s agent a 2.5% commission, do you really want your property listed with only a 2.25% co-broke, or even a 2% co-broke? This puts your property at a competitive disadvantage. On the other hand, what if you negotiated a 4.5% total commission with the co-broke at 2.5% and your agent earning 2%. It is impossible to determine how often this happens but I know it happens. This is problematic for different reasons. Do you want your agent working for 20% less than the buyer’s agent and most agents in general? If your agent will so easily negotiate her own commission down, how easily will she negotiate on your behalf? What are the overall implications of having your agent working for less than most agents most of the time? I would expect the answer depends on the situation, but I also know from experience that you generally get what you pay for.

Making The Most Of Your Real Estate Agent

chalkI recently spoke with a man whose parents owned a residence in Boston. His parents were considering selling their home and he indicated that, once they made a decision, they would contact me. This approach is a great example of a missed opportunity. If his parents already have a relationship with an agent they trust, they have an excellent opportunity to get some high quality free advice and consultation. If his parents don’t have an agent, they can evaluate the agent’s services on a trial basis and possibly get free advice and consultation.

The greatest value of having a relationship with a real estate agent you can trust is that you can consult with him or her regarding major real estate decisions. For a seller, what decision is more important than the initial decision to sell? Even a seemingly simple situation can actually be quite complex. For example, suppose you are transferred to the west coast. Do you need the equity out of your home so you can purchase in California? Should you rent out there first? What are the implications of renting your home here? How solid is the current market and how confident are you that the real estate market will get better for sellers, stay the same, or get worse? And how does all of this factor in to your decision?

Consulting with an agent regarding your decision to sell reveals the ability of your agent to objectively analyze your situation and offer sound advice. A good agent with a consultative approach can assist in fully analyzing and synthesizing all the different factors to help you make a powerful choice that furthers your goals.

Many people, however, make these decisions without expert advice, because they are uncomfortable bringing in an agent to help them. This is understandable. They don’t have a real estate agent they can trust. Because agents work on commission, they naturally have a bias in favor of wanting you to sell. It is difficult for them to be completely objective in their analysis and advice. However, at some level, almost all professionals have a personal financial bias. It all comes down to trust. Can you trust that your real estate agent has enough integrity to keep your interests truly in mind and be as objective as possible?

Your agent’s trustworthiness will be put to the test by consulting with him or her regarding the decision to buy or sell. The primary piece of information that you probably need, if you are thinking of selling, is an accurate picture of the value of your home. Most agents offer this analysis without charge. Not surprisingly, the raw data is subject to interpretation and the final value is more art than science.  Agents are often overly optimistic about the value of your property. You want the home to be worth as much as possible, and the agent wants the business. An experienced agent, who understands the market, and is good with the numbers, is the starting point. Only an agent you trust, and one who really understands the value of a long term agent-client relationship, can give you a truly honest appraisal of your home’s value. If you already have an agent you trust then this information will be very valuable. If you are working with an agent who is new to you, vigilantly check your agent’s references and consider how much you trust the agent before making any decisions. If you feel that the agent has genuinely assisted you in the decision-making process, and there is a foundation of trust, even if you decide not to sell in the current market, you have found the right agent. {Please Comment Here}