What Happened to Affordable Homes?

If you’ve been paying attention to home prices in greater Cincinnati over the past few years, you’ve probably noticed a trend: homes that were selling for around $150,000 in 2018 are now selling for well over $200,000. In fact, in many areas it is nearly impossible to find a move-in ready home for under $200,000. So, what happened?

The short answer is that we have been dealing with a shortage of homes for sale since 2012 or so. Remember that mortgage crisis circa 2008 - 2011? Many builders didn’t survive the sudden influx of foreclosed homes for sale, and others became much more conservative about building on spec (i.e. without a ready buyer) and financing terms.

As you can see in the chart above, newly completed single family homes haven’t even returned to half of the levels we were seeing in 2005. Think about it this way: over the past 18 years of population growth, not to mention the normal major life events that usually result in a move, builders in the Midwest have not built even half of the number of homes they had built prior to that. Could this have just been a market correction, though? Were builders in 2005 building way too many homes?

Nope. Over the same 20 year period, new household formation in the USA shows an obvious and steady increase (I’m very curious to know what that spike in 2020 was…maybe in a later post!). So, we saw an increase in demand for housing that was not compatible with supply levels that were not growing at the same rate. This led to increasing home prices in many markets, which was great for existing homeowners, many of whom had built more equity than they expected and continue to do so. For first time buyers the situation was a little more complex, but that’s a whole other post.

At the same time, many older homeowners were facing tough decisions about their long-term housing needs in the face of a struggling stock market and increasing long-term care costs. Some chose to age in place, so they opted to improve or adapt their homes to their changing needs. First floor bedroom suite additions, elevators, in-home caregivers, and inviting extended family to move in were all strategies for retirees who felt they had no great options. More recently, we’ve seen them reconsider moving because they don’t want to give up their attractive mortgage interest rates (assuming they refinanced within the past 4-5 years). This has further affected the number of homes available for sale.

The moral of the story is this: don’t wait for home prices to go down if you need to move. There is no reason for prices to drop until our supply issue is resolved, and that will take years (construction takes time, and good quality construction takes even more time). Interest rates will probably decrease over time, but I also wouldn’t recommend waiting around for those sub-3% rates we were seeing during the height of the pandemic. Focus on your needs today instead: if you need to buy, sell, or both, work with a professional to determine what your options are.

Commissions, Lawsuits, and NAR: Reality Check

A family member asked me how I felt about the recent court decision on a lawsuit against NAR and some large brokers, and it took me a little while to answer that email. I honestly hadn’t thought about it a lot even though I was aware of the pending decision, because I try not to stress myself out over things outside of my control. But the more I look into the case, the more confused I am about how the court arrived at their decision and found myself wanting to think this through.

Based on the news articles I have read about this case and the decision, it sounds like the courts are accepting the plaintiff’s characterization rather than actually understanding how real estate works in our country. I’m not terribly surprised, because there are a lot of misconceptions and stereotypes about the real estate industry and probably plenty of bad actors out there. But there are a few points I would urge the court to consider (if they cared what I think, which I’m sure they don’t).

At the center of the complaint is that sellers of property end up paying the buyer’s side of the commission. Legally, based on the listing contracts I’ve seen, the seller is only paying their broker a commission, and that broker is choosing to split that with whichever broker brings the buyer. The brokers are not required to offer any compensation to buyer brokers – no compensation listings do happen sometimes, especially with corporate-owned properties – but if they are a member of an MLS, they are probably required to allow all MLS affiliated brokers to see their publicly advertised listings, and if they are offering compensation it has to be the same for any buyer broker. 

You might wonder why it works this way…I know I did, when I was in real estate school back in 2014! As recently as the 1980s, all agents, even if they only worked with buyers, were legally required to represent the interests of the seller. They couldn’t point out flaws in a property and could be sued if it was found that they might have discouraged a likely buyer from making an offer. No one was actually working for the buyer unless they retained their own legal counsel to review the purchase contract. This wasn’t explained very well to buyers, though, which led to state and national laws regarding buyer representation and required disclosures about how commissions work. Buyer broker agreements, which are contracts between potential homebuyers and their agents about the commission to be paid and the commitment to work together for a period of time, are a relatively new concept in real estate and infrequently used. These agreements usually include language about what compensation the agent should expect from the buyer if the cooperating broker or a FSBO seller doesn’t choose to offer commission to the buyer’s agent.

No matter what it says on the listing contract, the listing itself, or a buyer broker agreement, commission rates are always, always, always negotiable. I’ve seen agents cut their commission to get a lucrative listing or to guarantee that the client buys through them. I’ve seen agents both chip in parts of their commissions to keep a deal from falling apart before closing. I’ve negotiated flat fee commissions on very low priced properties. So, while a company can encourage their agents to charge a certain amount of commission, there are always exceptions because we’re mostly independent contractors and every situation is different. If you’re a high producing agent and you want to charge someone half the company-recommended commission, your broker probably won’t care too much because they’re still getting plenty of money out of you. If they don’t decide to keep you in their company because of your commission strategy, another broker will gladly take you on.

Which brings me to the next point: if all agents only worked for one company their entire careers, I could understand why people might think there was some kind of collusion or price-fixing on commission rates. But to be honest, hardly any of us stay with the first company we join in real estate, so all of us have a good idea of what each company recommends as a commission rate. Which means our brokers also know, and not from sitting around in a back room somewhere deciding that there’s only one percentage that we all use. We also know that when your income is only based on commission, it’s super helpful to use an average commission rate when making goals and evaluating trends in your production. If the local market wasn’t willing to bear the commission rates brokers are charging, they would be lower.

And in fact, they are often lower than the 6% figure cited in the court case! There are plenty of alternatives for people who think that commission rates are too high. There will always be an agent or broker out there who’s willing to compromise on fees in order to get your business. Online brokers have existed for over 20 years, flat fee brokers have probably always existed, i-Buyers are a thing now and don’t even require an agent, and you can always go FSBO, especially in a sellers’ market with limited inventory like we are experiencing now. If you don’t want to pay for the services a broker is offering you, don’t. Or convince someone to do it cheaper. But don’t be surprised if you don’t have access to the same tools and networks to get your property sold that we do —we’re paying for the privilege of using them the same way we ask you to.

It will be interesting to see whether real estate actually changes as a result of this lawsuit and others like it. Personally, I think that real estate is an adaptable thing that should reflect local market conditions and norms, within the guidelines of applicable laws. At the end of the day, if commission rates end up decreasing then agents will just have to sell more properties to make the same amount of money, or renegotiate their commission splits with their brokers, or sell more expensive houses. With the drastic increase in home prices we have seen in the greater Cincinnati area, things are already moving in that direction (and I’m sorry if you’re waiting for prices to go down — it’s unlikely to happen here anytime soon). I just have one final note: in many pricier parts of the country, commission rates are lower than in the Midwest. It’s reasonable to assume that natural market forces would eventually drive broker commissions down in areas where average property values continue to rise. These things tend to happen in a capitalist economy.

P.S. I’m not sure I need to say this, but for the record, this is just my opinion as a licensed real estate agent. I’m not an attorney and this article doesn’t have any relation to the views of my broker, Coldwell Banker Realty, or any of the trade groups I represent.

Well, this is embarrassing...

The summer real estate market is definitely busier and hotter (sorry) than winter and spring! Amidst all the hubbub I seem to have neglected my blog; while it's super that I've been super busy with existing and new clients, I'd like to take a moment to breathe. Inhale. Exhale.

One part about real estate you don't often read about is how we're held accountable to the codes and laws that govern our behavior. Naturally, a client or another agent could report a violation*, but there is also what we call testing. Most frequently used to enforce fair housing violations, testing involves fair housing groups contacting agents or landlords, usually posing as prospective clients or a series of prospective clients, to ensure that the agent or landlord is following established guidelines...and that they follow those guidelines consistently for every client regardless of their status or class. There are several protected classes under Ohio law:

It is illegal, pursuant to the Ohio Fair Housing Law, Division (H) of Section 4112.02 of the Revised Code and the Federal Fair Housing law, 42 U.S.C.A. 3601, as amended, to refuse to sell, transfer, assign, rent, lease, sublease or finance housing accommodations, refuse to negotiate for the sale or rental of housing accommodations, or otherwise deny or make unavailable housing accommodations because of race, color, religion, sex, familial status as defined in section 4112.01 of the Revised Code, ancestry, military status as defined in that section, disability as defined in that section, or national origin or to so discriminate in advertising the sale or rental of housing, in the financing of housing, or in the provision of real estate brokerage services. It is also illegal, for profit, to induce or attempt to induce a person to sell or rent a dwelling by representations regarding the entry into the neighborhood of a person or persons belonging to one of the protected classes. (Emphasis mine, Source)**

I'm pretty sure I was tested this week. I'll never know for sure, unless I made a mistake, but I was contacted by a woman who wanted more information on one of my listings, and expressed an interest in scheduling some additional showings with me that would include that property. I set up a custom MLS search for her, from which she chose her favorites (I don't usually recommend specific properties without showing someone all possible matches for the search criteria -- that could be construed as steering a client to or away from a particular area). I was just waiting for her to confirm the showings, which would have started tomorrow.

But today, her email address is no longer valid. I never got a phone number because I'm an idiot who forgot to ask for it, and when she called me it showed up "No Caller ID."

I was disappointed for about 30 minutes. No one likes to feel like they've done work for no reason. But then the testing theory occurred to me, and I realized that this could have been my chance to prove that I'm a friendly, honest, ethical agent who just wants to help someone buy a home. And that actually makes me feel pretty good.

P.S. If the person I'm writing about is an actual client and we've just had a communication breakdown, thank you for inspiring a blog post & give me a call when you have a chance!

* If you feel that an agent has treated you illegally or unfairly, you can report their actions to their broker, the local Board of REALTORS® (if they are a member), or the department in your state that governs real estate licensing. In Ohio, this is the Ohio Division of Real Estate & Professional Licensing.

** The Code of Ethics adopted by the National Association of REALTORS adds sexual orientation and gender identity to the above classes; those above are protected under federal or state law (or both). I'll save explaining that distinction for another post. 

Privacy forever!

Did you know that your real estate agent has a legal obligation to keep all details that are not public record regarding your sale or purchase private? Forever?

Public information varies depending on where you live, but in the Greater Cincinnati area the public has access to the following details about residential transactions:

• When you purchased or sold a property and to whom
• What the property taxes are on the property and whether they are current
• Your tax mailing address

In addition, real estate agents, lenders, appraisers, and other real estate professionals have access to some additional data. This is to assist us in making fair evaluations of properties and their values by providing us a more complete picture of how real estate transactions usually happen:

• The type of financing used to purchase a property (e.g. conventional, FHA, cash)
• The amount of time the property was on the market
• Any additional incentives offered as a part of the sale (e.g. seller-paid closing costs)
• Whether the property has any history of foreclosure action, even if it was resolved

Have I left anything out? If you have questions or comments about privacy in real estate, let me know in the comments!